Correlation Between Ligao Foods and Levima Advanced

Can any of the company-specific risk be diversified away by investing in both Ligao Foods and Levima Advanced 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 Ligao Foods and Levima Advanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ligao Foods CoLtd and Levima Advanced Materials, you can compare the effects of market volatilities on Ligao Foods and Levima Advanced 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 Ligao Foods with a short position of Levima Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ligao Foods and Levima Advanced.

Diversification Opportunities for Ligao Foods and Levima Advanced

0.97

Correlation Coefficient

Ligao Foods  Levima Advanced

Almost no diversification

The 3 months correlation between Ligao and Levima is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Ligao Foods CoLtd and Levima Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Levima Advanced Materials and Ligao Foods 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 Ligao Foods CoLtd are associated (or correlated) with Levima Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Levima Advanced Materials has no effect on the direction of Ligao Foods i.e., Ligao Foods and Levima Advanced go up and down completely randomly.

Pair Corralation between Ligao Foods and Levima Advanced

Assuming the 90 days trading horizon Ligao Foods CoLtd is expected to generate 1.25 times more return on investment than Levima Advanced. However, Ligao Foods is 1.25 times more volatile than Levima Advanced Materials. It trades about 0.22 of its potential returns per unit of risk. Levima Advanced Materials is currently generating about 0.11 per unit of risk. If you would invest  2,331  in Ligao Foods CoLtd on September 2, 2024 and sell it today you would earn a total of  1,613  from holding Ligao Foods CoLtd or generate 69.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Ligao Foods CoLtd  vs.  Levima Advanced Materials

Ligao Foods CoLtd

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ligao Foods CoLtd are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ligao Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Levima Advanced Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Levima Advanced Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Levima Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ligao Foods and Levima Advanced

The main advantage of trading using opposite Ligao Foods and Levima Advanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ligao Foods position performs unexpectedly, Levima Advanced 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 Levima Advanced will offset losses from the drop in Levima Advanced's long position.

The idea behind Ligao Foods CoLtd and Levima Advanced Materials 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.