Correlation Between Seiko Epson and Legend Holdings

Can any of the company-specific risk be diversified away by investing in both Seiko Epson and Legend Holdings at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Seiko Epson and Legend Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Seiko Epson and Legend Holdings, you can compare the effects of market volatilities on Seiko Epson and Legend Holdings and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Seiko Epson with a short position of Legend Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seiko Epson and Legend Holdings.

Diversification Opportunities for Seiko Epson and Legend Holdings

-0.54

Correlation Coefficient

Seiko Epson  Legend Holdings

Excellent diversification

The 3 months correlation between Seiko and Legend is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Seiko Epson and Legend Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legend Holdings and Seiko Epson is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Seiko Epson are associated (or correlated) with Legend Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legend Holdings has no effect on the direction of Seiko Epson i.e., Seiko Epson and Legend Holdings go up and down completely randomly.

Pair Corralation between Seiko Epson and Legend Holdings

Assuming the 90 days horizon Seiko Epson is expected to under-perform the Legend Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Seiko Epson is 2.42 times less risky than Legend Holdings. The stock trades about -0.1 of its potential returns per unit of risk. The Legend Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  86.00  in Legend Holdings on December 2, 2024 and sell it today you would earn a total of  24.00  from holding Legend Holdings or generate 27.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Seiko Epson  vs.  Legend Holdings

Seiko Epson

Risk-Adjusted Performance

Very Weak

Over the last 90 days Seiko Epson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Seiko Epson is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Legend Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Legend Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Legend Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Seiko Epson and Legend Holdings

The main advantage of trading using opposite Seiko Epson and Legend Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seiko Epson position performs unexpectedly, Legend Holdings can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Legend Holdings will offset losses from the drop in Legend Holdings' long position.

The idea behind Seiko Epson and Legend Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..