Correlation Between Athens General and Lavipharm

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

By analyzing existing cross correlation between Athens General Composite and Lavipharm SA, you can compare the effects of market volatilities on Athens General and Lavipharm 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 Athens General with a short position of Lavipharm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Athens General and Lavipharm.

Diversification Opportunities for Athens General and Lavipharm

0.71

Correlation Coefficient

Athens General  Lavipharm

Poor diversification

The 3 months correlation between Athens and Lavipharm is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Athens General Composite and Lavipharm SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lavipharm SA and Athens General 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 Athens General Composite are associated (or correlated) with Lavipharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lavipharm SA has no effect on the direction of Athens General i.e., Athens General and Lavipharm go up and down completely randomly.

Pair Corralation between Athens General and Lavipharm

Assuming the 90 days trading horizon Athens General Composite is expected to generate 0.43 times more return on investment than Lavipharm. However, Athens General Composite is 2.31 times less risky than Lavipharm. It trades about -0.01 of its potential returns per unit of risk. Lavipharm SA is currently generating about -0.11 per unit of risk. If you would invest  144,656  in Athens General Composite on September 5, 2024 and sell it today you would lose (977.00) from holding Athens General Composite or give up 0.68% of portfolio value over 90 days.

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

Athens General Composite  vs.  Lavipharm SA

Pair Trading with Athens General and Lavipharm

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

The idea behind Athens General Composite and Lavipharm SA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.