Correlation Between Livetech and MAHLE Metal
Can any of the company-specific risk be diversified away by investing in both Livetech and MAHLE Metal 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 Livetech and MAHLE Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Livetech da Bahia and MAHLE Metal Leve, you can compare the effects of market volatilities on Livetech and MAHLE Metal 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 Livetech with a short position of MAHLE Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Livetech and MAHLE Metal.
Diversification Opportunities for Livetech and MAHLE Metal
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Livetech and MAHLE is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Livetech da Bahia and MAHLE Metal Leve in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MAHLE Metal Leve and Livetech 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 Livetech da Bahia are associated (or correlated) with MAHLE Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MAHLE Metal Leve has no effect on the direction of Livetech i.e., Livetech and MAHLE Metal go up and down completely randomly.
Pair Corralation between Livetech and MAHLE Metal
Assuming the 90 days trading horizon Livetech da Bahia is expected to under-perform the MAHLE Metal. But the stock apears to be less risky and, when comparing its historical volatility, Livetech da Bahia is 1.23 times less risky than MAHLE Metal. The stock trades about -0.36 of its potential returns per unit of risk. The MAHLE Metal Leve is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest 2,961 in MAHLE Metal Leve on August 29, 2024 and sell it today you would lose (245.00) from holding MAHLE Metal Leve or give up 8.27% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Livetech da Bahia vs. MAHLE Metal Leve
Performance |
| Timeline |
| Livetech da Bahia |
| MAHLE Metal Leve |
Livetech and MAHLE Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Livetech and MAHLE Metal
The main advantage of trading using opposite Livetech and MAHLE Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Livetech position performs unexpectedly, MAHLE Metal 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 MAHLE Metal will offset losses from the drop in MAHLE Metal's long position.The idea behind Livetech da Bahia and MAHLE Metal Leve 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.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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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