Correlation Between LION ONE and Aozora Bank

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

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

Diversification Opportunities for LION ONE and Aozora Bank

0.12

Correlation Coefficient

LION ONE  Aozora Bank

Average diversification

The 3 months correlation between LION and Aozora is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding LION ONE METALS and Aozora Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aozora Bank and LION ONE 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 LION ONE METALS are associated (or correlated) with Aozora Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aozora Bank has no effect on the direction of LION ONE i.e., LION ONE and Aozora Bank go up and down completely randomly.

Pair Corralation between LION ONE and Aozora Bank

Assuming the 90 days trading horizon LION ONE METALS is expected to under-perform the Aozora Bank. In addition to that, LION ONE is 2.11 times more volatile than Aozora Bank. It trades about -0.02 of its total potential returns per unit of risk. Aozora Bank is currently generating about -0.03 per unit of volatility. If you would invest  1,600  in Aozora Bank on September 4, 2024 and sell it today you would lose (80.00) from holding Aozora Bank or give up 5.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

LION ONE METALS  vs.  Aozora Bank

LION ONE METALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LION ONE METALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, LION ONE is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Aozora Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aozora Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aozora Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LION ONE and Aozora Bank

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

The idea behind LION ONE METALS and Aozora Bank 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.