Correlation Between Lahav LR and Sarfati

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

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

Diversification Opportunities for Lahav LR and Sarfati

0.87

Correlation Coefficient

Lahav LR  Sarfati

Very poor diversification

The 3 months correlation between Lahav and Sarfati is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Lahav LR Real and Sarfati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarfati and Lahav LR 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 Lahav LR Real are associated (or correlated) with Sarfati. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarfati has no effect on the direction of Lahav LR i.e., Lahav LR and Sarfati go up and down completely randomly.

Pair Corralation between Lahav LR and Sarfati

Assuming the 90 days trading horizon Lahav LR Real is expected to generate 1.03 times more return on investment than Sarfati. However, Lahav LR is 1.03 times more volatile than Sarfati. It trades about 0.37 of its potential returns per unit of risk. Sarfati is currently generating about 0.25 per unit of risk. If you would invest  38,500  in Lahav LR Real on September 27, 2024 and sell it today you would earn a total of  12,420  from holding Lahav LR Real or generate 32.26% return on investment over 90 days.

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

Lahav LR Real  vs.  Sarfati

Lahav LR Real

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Lahav LR Real are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Lahav LR unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sarfati

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sarfati are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sarfati sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lahav LR and Sarfati

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

The idea behind Lahav LR Real and Sarfati 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.