Correlation Between ORN and Lumia
Can any of the company-specific risk be diversified away by investing in both ORN and Lumia 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 ORN and Lumia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ORN and Lumia, you can compare the effects of market volatilities on ORN and Lumia 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 ORN with a short position of Lumia. Check out your portfolio center. Please also check ongoing floating volatility patterns of ORN and Lumia.
Diversification Opportunities for ORN and Lumia
Weak diversification
The 3 months correlation between ORN and Lumia is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding ORN and Lumia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumia and ORN 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 ORN are associated (or correlated) with Lumia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumia has no effect on the direction of ORN i.e., ORN and Lumia go up and down completely randomly.
Pair Corralation between ORN and Lumia
Assuming the 90 days trading horizon ORN is expected to generate 0.84 times more return on investment than Lumia. However, ORN is 1.19 times less risky than Lumia. It trades about -0.21 of its potential returns per unit of risk. Lumia is currently generating about -0.23 per unit of risk. If you would invest 158.00 in ORN on October 22, 2024 and sell it today you would lose (34.00) from holding ORN or give up 21.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ORN vs. Lumia
Performance |
| Timeline |
| ORN |
| Lumia |
ORN and Lumia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ORN and Lumia
The main advantage of trading using opposite ORN and Lumia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ORN position performs unexpectedly, Lumia 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 Lumia will offset losses from the drop in Lumia's long position.The idea behind ORN and Lumia 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 CEOs Directory module to screen CEOs from public companies around the world.
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