Correlation Between Loandepot and CNFinance Holdings

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

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

Diversification Opportunities for Loandepot and CNFinance Holdings

-0.09

Correlation Coefficient

Loandepot  CNFinance Holdings

Good diversification

The 3 months correlation between Loandepot and CNFinance is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Loandepot and CNFinance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNFinance Holdings and Loandepot 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 Loandepot are associated (or correlated) with CNFinance Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNFinance Holdings has no effect on the direction of Loandepot i.e., Loandepot and CNFinance Holdings go up and down completely randomly.

Pair Corralation between Loandepot and CNFinance Holdings

Considering the 90-day investment horizon Loandepot is expected to under-perform the CNFinance Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Loandepot is 2.56 times less risky than CNFinance Holdings. The stock trades about -0.11 of its potential returns per unit of risk. The CNFinance Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  99.00  in CNFinance Holdings on September 18, 2024 and sell it today you would lose (5.00) from holding CNFinance Holdings or give up 5.05% of portfolio value over 90 days.

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

Loandepot  vs.  CNFinance Holdings

Loandepot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loandepot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

CNFinance Holdings

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CNFinance Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, CNFinance Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Loandepot and CNFinance Holdings

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

The idea behind Loandepot and CNFinance 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.