Correlation Between Li-FT Power and Natural Health

Can any of the company-specific risk be diversified away by investing in both Li-FT Power and Natural Health 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 Li-FT Power and Natural Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Li FT Power and Natural Health Trends, you can compare the effects of market volatilities on Li-FT Power and Natural Health 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 Li-FT Power with a short position of Natural Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li-FT Power and Natural Health.

Diversification Opportunities for Li-FT Power and Natural Health

-0.2

Correlation Coefficient

Li-FT Power  Natural Health

Good diversification

The 3 months correlation between Li-FT and Natural is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Li FT Power and Natural Health Trends in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Health Trends and Li-FT Power 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 Li FT Power are associated (or correlated) with Natural Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Health Trends has no effect on the direction of Li-FT Power i.e., Li-FT Power and Natural Health go up and down completely randomly.

Pair Corralation between Li-FT Power and Natural Health

Assuming the 90 days horizon Li FT Power is expected to under-perform the Natural Health. In addition to that, Li-FT Power is 2.14 times more volatile than Natural Health Trends. It trades about -0.04 of its total potential returns per unit of risk. Natural Health Trends is currently generating about 0.1 per unit of volatility. If you would invest  400.00  in Natural Health Trends on December 28, 2024 and sell it today you would earn a total of  64.00  from holding Natural Health Trends or generate 16.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Li FT Power  vs.  Natural Health Trends

Li FT Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Li FT Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Natural Health Trends

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Health Trends are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Natural Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li-FT Power and Natural Health

The main advantage of trading using opposite Li-FT Power and Natural Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li-FT Power position performs unexpectedly, Natural Health 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 Natural Health will offset losses from the drop in Natural Health's long position.

The idea behind Li FT Power and Natural Health Trends 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.