Correlation Between Reward Wool and Lan Fa
Can any of the company-specific risk be diversified away by investing in both Reward Wool and Lan Fa 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 Reward Wool and Lan Fa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Reward Wool Industry and Lan Fa Textile, you can compare the effects of market volatilities on Reward Wool and Lan Fa 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 Reward Wool with a short position of Lan Fa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reward Wool and Lan Fa.
Diversification Opportunities for Reward Wool and Lan Fa
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Reward and Lan is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Reward Wool Industry and Lan Fa Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lan Fa Textile and Reward Wool 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 Reward Wool Industry are associated (or correlated) with Lan Fa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lan Fa Textile has no effect on the direction of Reward Wool i.e., Reward Wool and Lan Fa go up and down completely randomly.
Pair Corralation between Reward Wool and Lan Fa
Assuming the 90 days trading horizon Reward Wool Industry is expected to under-perform the Lan Fa. In addition to that, Reward Wool is 1.16 times more volatile than Lan Fa Textile. It trades about -0.29 of its total potential returns per unit of risk. Lan Fa Textile is currently generating about -0.12 per unit of volatility. If you would invest 1,050 in Lan Fa Textile on August 30, 2024 and sell it today you would lose (70.00) from holding Lan Fa Textile or give up 6.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Reward Wool Industry vs. Lan Fa Textile
Performance |
| Timeline |
| Reward Wool Industry |
| Lan Fa Textile |
Reward Wool and Lan Fa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reward Wool and Lan Fa
The main advantage of trading using opposite Reward Wool and Lan Fa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reward Wool position performs unexpectedly, Lan Fa 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 Lan Fa will offset losses from the drop in Lan Fa's long position.The idea behind Reward Wool Industry and Lan Fa Textile 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.| Lan Fa vs. Lealea Enterprise Co | Lan Fa vs. Li Peng Enterprise | Lan Fa vs. De Licacy Industrial | Lan Fa vs. Chyang Sheng Dyeing |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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