Correlation Between G III and Li Ning
Can any of the company-specific risk be diversified away by investing in both G III and Li Ning 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 G III and Li Ning into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between G III Apparel Group and Li Ning Company, you can compare the effects of market volatilities on G III and Li Ning 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 G III with a short position of Li Ning. Check out your portfolio center. Please also check ongoing floating volatility patterns of G III and Li Ning.
Diversification Opportunities for G III and Li Ning
Poor diversification
The 3 months correlation between GI4 and LNLB is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding G III Apparel Group and Li Ning Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Ning Company and G III 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 G III Apparel Group are associated (or correlated) with Li Ning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li Ning Company has no effect on the direction of G III i.e., G III and Li Ning go up and down completely randomly.
Pair Corralation between G III and Li Ning
Assuming the 90 days trading horizon G III is expected to generate 1.01 times less return on investment than Li Ning. But when comparing it to its historical volatility, G III Apparel Group is 1.2 times less risky than Li Ning. It trades about 0.04 of its potential returns per unit of risk. Li Ning Company is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 185.00 in Li Ning Company on October 26, 2024 and sell it today you would earn a total of 5.00 from holding Li Ning Company or generate 2.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
G III Apparel Group vs. Li Ning Company
Performance |
| Timeline |
| G III Apparel |
| Li Ning Company |
G III and Li Ning Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with G III and Li Ning
The main advantage of trading using opposite G III and Li Ning positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if G III position performs unexpectedly, Li Ning 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 Li Ning will offset losses from the drop in Li Ning's long position.The idea behind G III Apparel Group and Li Ning Company 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.| Li Ning vs. Direct Line Insurance | Li Ning vs. Gold Road Resources | Li Ning vs. Chiba Bank | Li Ning vs. BANKINTER ADR 2007 |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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