Correlation Between TOPMATERIAL and LAKE MATERIALS

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

By analyzing existing cross correlation between TOPMATERIAL LTD and LAKE MATERIALS LTD, you can compare the effects of market volatilities on TOPMATERIAL and LAKE MATERIALS 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 TOPMATERIAL with a short position of LAKE MATERIALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of TOPMATERIAL and LAKE MATERIALS.

Diversification Opportunities for TOPMATERIAL and LAKE MATERIALS

0.98

Correlation Coefficient

TOPMATERIAL  LAKE MATERIALS

Almost no diversification

The 3 months correlation between TOPMATERIAL and LAKE is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding TOPMATERIAL LTD and LAKE MATERIALS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAKE MATERIALS LTD and TOPMATERIAL 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 TOPMATERIAL LTD are associated (or correlated) with LAKE MATERIALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAKE MATERIALS LTD has no effect on the direction of TOPMATERIAL i.e., TOPMATERIAL and LAKE MATERIALS go up and down completely randomly.

Pair Corralation between TOPMATERIAL and LAKE MATERIALS

Assuming the 90 days trading horizon TOPMATERIAL LTD is expected to under-perform the LAKE MATERIALS. In addition to that, TOPMATERIAL is 1.1 times more volatile than LAKE MATERIALS LTD. It trades about -0.09 of its total potential returns per unit of risk. LAKE MATERIALS LTD is currently generating about -0.04 per unit of volatility. If you would invest  1,166,000  in LAKE MATERIALS LTD on September 21, 2024 and sell it today you would lose (55,000) from holding LAKE MATERIALS LTD or give up 4.72% of portfolio value over 90 days.

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

TOPMATERIAL LTD  vs.  LAKE MATERIALS LTD

TOPMATERIAL LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOPMATERIAL LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

LAKE MATERIALS LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LAKE MATERIALS LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with TOPMATERIAL and LAKE MATERIALS

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

The idea behind TOPMATERIAL LTD and LAKE MATERIALS LTD 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..