Correlation Between Yirendai and Lufax Holding

Can any of the company-specific risk be diversified away by investing in both Yirendai and Lufax Holding 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 Yirendai and Lufax Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Yirendai and Lufax Holding, you can compare the effects of market volatilities on Yirendai and Lufax Holding 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 Yirendai with a short position of Lufax Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yirendai and Lufax Holding.

Diversification Opportunities for Yirendai and Lufax Holding

0.82

Correlation Coefficient

Yirendai  Lufax Holding

Very poor diversification

The 3 months correlation between Yirendai and Lufax is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Yirendai and Lufax Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lufax Holding and Yirendai 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 Yirendai are associated (or correlated) with Lufax Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lufax Holding has no effect on the direction of Yirendai i.e., Yirendai and Lufax Holding go up and down completely randomly.

Pair Corralation between Yirendai and Lufax Holding

Considering the 90-day investment horizon Yirendai is expected to generate 1.67 times more return on investment than Lufax Holding. However, Yirendai is 1.67 times more volatile than Lufax Holding. It trades about -0.03 of its potential returns per unit of risk. Lufax Holding is currently generating about -0.05 per unit of risk. If you would invest  567.00  in Yirendai on August 30, 2024 and sell it today you would lose (43.00) from holding Yirendai or give up 7.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Yirendai  vs.  Lufax Holding

Yirendai

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yirendai are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Yirendai exhibited solid returns over the last few months and may actually be approaching a breakup point.

Lufax Holding

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lufax Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Lufax Holding unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yirendai and Lufax Holding

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

The idea behind Yirendai and Lufax Holding 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.