Correlation Between Lifco AB and Micro Systemation

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

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

Diversification Opportunities for Lifco AB and Micro Systemation

-0.15

Correlation Coefficient

Lifco AB  Micro Systemation

Good diversification

The 3 months correlation between Lifco and Micro is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Lifco AB and Micro Systemation AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micro Systemation and Lifco AB 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 Lifco AB are associated (or correlated) with Micro Systemation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micro Systemation has no effect on the direction of Lifco AB i.e., Lifco AB and Micro Systemation go up and down completely randomly.

Pair Corralation between Lifco AB and Micro Systemation

Assuming the 90 days trading horizon Lifco AB is expected to under-perform the Micro Systemation. But the stock apears to be less risky and, when comparing its historical volatility, Lifco AB is 1.39 times less risky than Micro Systemation. The stock trades about -0.03 of its potential returns per unit of risk. The Micro Systemation AB is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,556  in Micro Systemation AB on September 30, 2024 and sell it today you would earn a total of  124.00  from holding Micro Systemation AB or generate 2.72% return on investment over 90 days.

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

Lifco AB  vs.  Micro Systemation AB

Lifco AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lifco AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Lifco AB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Micro Systemation

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Micro Systemation AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Micro Systemation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lifco AB and Micro Systemation

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

The idea behind Lifco AB and Micro Systemation AB 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.