Correlation Between FinVolution and Lexinfintech Holdings

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

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

Diversification Opportunities for FinVolution and Lexinfintech Holdings

0.88

Correlation Coefficient

FinVolution  Lexinfintech Holdings

Very poor diversification

The 3 months correlation between FinVolution and Lexinfintech is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding FinVolution Group and Lexinfintech Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lexinfintech Holdings and FinVolution 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 FinVolution Group are associated (or correlated) with Lexinfintech Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lexinfintech Holdings has no effect on the direction of FinVolution i.e., FinVolution and Lexinfintech Holdings go up and down completely randomly.

Pair Corralation between FinVolution and Lexinfintech Holdings

Given the investment horizon of 90 days FinVolution is expected to generate 4.98 times less return on investment than Lexinfintech Holdings. But when comparing it to its historical volatility, FinVolution Group is 2.96 times less risky than Lexinfintech Holdings. It trades about 0.16 of its potential returns per unit of risk. Lexinfintech Holdings is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  167.00  in Lexinfintech Holdings on August 31, 2024 and sell it today you would earn a total of  323.00  from holding Lexinfintech Holdings or generate 193.41% return on investment over 90 days.

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

FinVolution Group  vs.  Lexinfintech Holdings

FinVolution Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FinVolution Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, FinVolution showed solid returns over the last few months and may actually be approaching a breakup point.

Lexinfintech Holdings

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lexinfintech Holdings are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Lexinfintech Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FinVolution and Lexinfintech Holdings

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

The idea behind FinVolution Group and Lexinfintech Holdings 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.