Correlation Between Solvay SA and Lotus Bakeries
Can any of the company-specific risk be diversified away by investing in both Solvay SA and Lotus Bakeries 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 Solvay SA and Lotus Bakeries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Solvay SA and Lotus Bakeries, you can compare the effects of market volatilities on Solvay SA and Lotus Bakeries 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 Solvay SA with a short position of Lotus Bakeries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solvay SA and Lotus Bakeries.
Diversification Opportunities for Solvay SA and Lotus Bakeries
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Solvay and Lotus is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Solvay SA and Lotus Bakeries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Bakeries and Solvay SA 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 Solvay SA are associated (or correlated) with Lotus Bakeries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Bakeries has no effect on the direction of Solvay SA i.e., Solvay SA and Lotus Bakeries go up and down completely randomly.
Pair Corralation between Solvay SA and Lotus Bakeries
Assuming the 90 days trading horizon Solvay SA is expected to generate 1.23 times more return on investment than Lotus Bakeries. However, Solvay SA is 1.23 times more volatile than Lotus Bakeries. It trades about 0.09 of its potential returns per unit of risk. Lotus Bakeries is currently generating about 0.08 per unit of risk. If you would invest 1,409 in Solvay SA on August 30, 2024 and sell it today you would earn a total of 1,821 from holding Solvay SA or generate 129.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Solvay SA vs. Lotus Bakeries
Performance |
| Timeline |
| Solvay SA |
| Lotus Bakeries |
Solvay SA and Lotus Bakeries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Solvay SA and Lotus Bakeries
The main advantage of trading using opposite Solvay SA and Lotus Bakeries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solvay SA position performs unexpectedly, Lotus Bakeries 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 Lotus Bakeries will offset losses from the drop in Lotus Bakeries' long position.| Solvay SA vs. Melexis NV | Solvay SA vs. Biotalys NV | Solvay SA vs. Nextensa NV | Solvay SA vs. Belysse Group NV |
| Lotus Bakeries vs. KBC Groep NV | Lotus Bakeries vs. Proximus NV | Lotus Bakeries vs. ageas SANV | Lotus Bakeries vs. Solvay SA |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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