Correlation Between Li Ning and USWE SPORTS

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

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

Diversification Opportunities for Li Ning and USWE SPORTS

0.25

Correlation Coefficient

Li Ning  USWE SPORTS

Modest diversification

The 3 months correlation between LNLB and USWE is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Li Ning Company and USWE SPORTS AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USWE SPORTS AB and Li Ning 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 Li Ning Company are associated (or correlated) with USWE SPORTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USWE SPORTS AB has no effect on the direction of Li Ning i.e., Li Ning and USWE SPORTS go up and down completely randomly.

Pair Corralation between Li Ning and USWE SPORTS

Assuming the 90 days trading horizon Li Ning Company is expected to generate 1.03 times more return on investment than USWE SPORTS. However, Li Ning is 1.03 times more volatile than USWE SPORTS AB. It trades about -0.01 of its potential returns per unit of risk. USWE SPORTS AB is currently generating about -0.02 per unit of risk. If you would invest  304.00  in Li Ning Company on August 31, 2024 and sell it today you would lose (116.00) from holding Li Ning Company or give up 38.16% of portfolio value over 90 days.

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

Li Ning Company  vs.  USWE SPORTS AB

Li Ning Company

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Li Ning Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Li Ning reported solid returns over the last few months and may actually be approaching a breakup point.

USWE SPORTS AB

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in USWE SPORTS AB are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, USWE SPORTS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li Ning and USWE SPORTS

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

The idea behind Li Ning Company and USWE SPORTS 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.