Correlation Between GEAR4MUSIC and Lifeway Foods

Can any of the company-specific risk be diversified away by investing in both GEAR4MUSIC and Lifeway Foods 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 GEAR4MUSIC and Lifeway Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GEAR4MUSIC LS 10 and Lifeway Foods, you can compare the effects of market volatilities on GEAR4MUSIC and Lifeway Foods 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 GEAR4MUSIC with a short position of Lifeway Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of GEAR4MUSIC and Lifeway Foods.

Diversification Opportunities for GEAR4MUSIC and Lifeway Foods

-0.59

Correlation Coefficient

GEAR4MUSIC  Lifeway Foods

Excellent diversification

The 3 months correlation between GEAR4MUSIC and Lifeway is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding GEAR4MUSIC LS 10 and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods and GEAR4MUSIC 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 GEAR4MUSIC LS 10 are associated (or correlated) with Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of GEAR4MUSIC i.e., GEAR4MUSIC and Lifeway Foods go up and down completely randomly.

Pair Corralation between GEAR4MUSIC and Lifeway Foods

Assuming the 90 days horizon GEAR4MUSIC LS 10 is expected to under-perform the Lifeway Foods. But the stock apears to be less risky and, when comparing its historical volatility, GEAR4MUSIC LS 10 is 2.17 times less risky than Lifeway Foods. The stock trades about -0.06 of its potential returns per unit of risk. The Lifeway Foods is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,880  in Lifeway Foods on September 4, 2024 and sell it today you would earn a total of  460.00  from holding Lifeway Foods or generate 24.47% return on investment over 90 days.

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

GEAR4MUSIC LS 10  vs.  Lifeway Foods

GEAR4MUSIC LS 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GEAR4MUSIC LS 10 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Lifeway Foods

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lifeway Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GEAR4MUSIC and Lifeway Foods

The main advantage of trading using opposite GEAR4MUSIC and Lifeway Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GEAR4MUSIC position performs unexpectedly, Lifeway Foods 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 Lifeway Foods will offset losses from the drop in Lifeway Foods' long position.

The idea behind GEAR4MUSIC LS 10 and Lifeway Foods 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.