Correlation Between Falcon Power and Lan Fa
Can any of the company-specific risk be diversified away by investing in both Falcon Power 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 Falcon Power and Lan Fa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Falcon Power Co and Lan Fa Textile, you can compare the effects of market volatilities on Falcon Power 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 Falcon Power with a short position of Lan Fa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Falcon Power and Lan Fa.
Diversification Opportunities for Falcon Power and Lan Fa
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Falcon and Lan is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Falcon Power Co 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 Falcon 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 Falcon Power Co 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 Falcon Power i.e., Falcon Power and Lan Fa go up and down completely randomly.
Pair Corralation between Falcon Power and Lan Fa
Assuming the 90 days trading horizon Falcon Power Co is expected to under-perform the Lan Fa. In addition to that, Falcon Power is 2.2 times more volatile than Lan Fa Textile. It trades about -0.13 of its total potential returns per unit of risk. Lan Fa Textile is currently generating about -0.07 per unit of volatility. If you would invest 996.00 in Lan Fa Textile on August 30, 2024 and sell it today you would lose (16.00) from holding Lan Fa Textile or give up 1.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Falcon Power Co vs. Lan Fa Textile
Performance |
| Timeline |
| Falcon Power |
| Lan Fa Textile |
Falcon Power and Lan Fa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Falcon Power and Lan Fa
The main advantage of trading using opposite Falcon Power and Lan Fa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Falcon Power 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.| Falcon Power vs. Lee Chi Enterprises | Falcon Power vs. Fortune Electric Co | Falcon Power vs. Kaulin Mfg | Falcon Power vs. Klingon Aerospace |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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