Correlation Between Lotus Bakeries and Roularta

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

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

Diversification Opportunities for Lotus Bakeries and Roularta

0.76

Correlation Coefficient

Lotus Bakeries  Roularta

Poor diversification

The 3 months correlation between Lotus and Roularta is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Lotus Bakeries and Roularta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roularta and Lotus Bakeries 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 Lotus Bakeries are associated (or correlated) with Roularta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roularta has no effect on the direction of Lotus Bakeries i.e., Lotus Bakeries and Roularta go up and down completely randomly.

Pair Corralation between Lotus Bakeries and Roularta

Assuming the 90 days trading horizon Lotus Bakeries is expected to under-perform the Roularta. In addition to that, Lotus Bakeries is 1.34 times more volatile than Roularta. It trades about -0.17 of its total potential returns per unit of risk. Roularta is currently generating about -0.14 per unit of volatility. If you would invest  1,160  in Roularta on August 31, 2024 and sell it today you would lose (45.00) from holding Roularta or give up 3.88% of portfolio value over 90 days.

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

Lotus Bakeries  vs.  Roularta

Lotus Bakeries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotus Bakeries has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Lotus Bakeries is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Roularta

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roularta has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Roularta is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Lotus Bakeries and Roularta

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

The idea behind Lotus Bakeries and Roularta 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.