Correlation Between OBI Pharma and Lan Fa
Can any of the company-specific risk be diversified away by investing in both OBI Pharma 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 OBI Pharma and Lan Fa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between OBI Pharma and Lan Fa Textile, you can compare the effects of market volatilities on OBI Pharma 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 OBI Pharma with a short position of Lan Fa. Check out your portfolio center. Please also check ongoing floating volatility patterns of OBI Pharma and Lan Fa.
Diversification Opportunities for OBI Pharma and Lan Fa
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between OBI and Lan is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding OBI Pharma 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 OBI Pharma 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 OBI Pharma 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 OBI Pharma i.e., OBI Pharma and Lan Fa go up and down completely randomly.
Pair Corralation between OBI Pharma and Lan Fa
Assuming the 90 days trading horizon OBI Pharma is expected to under-perform the Lan Fa. In addition to that, OBI Pharma is 1.3 times more volatile than Lan Fa Textile. It trades about -0.01 of its total potential returns per unit of risk. Lan Fa Textile is currently generating about 0.02 per unit of volatility. If you would invest 870.00 in Lan Fa Textile on August 27, 2024 and sell it today you would earn a total of 118.00 from holding Lan Fa Textile or generate 13.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
OBI Pharma vs. Lan Fa Textile
Performance |
| Timeline |
| OBI Pharma |
| Lan Fa Textile |
OBI Pharma and Lan Fa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with OBI Pharma and Lan Fa
The main advantage of trading using opposite OBI Pharma and Lan Fa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OBI Pharma 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 OBI Pharma 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. Taiwan Semiconductor Manufacturing | Lan Fa vs. Hon Hai Precision | Lan Fa vs. MediaTek | Lan Fa vs. Chunghwa Telecom Co |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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