Correlation Between Ferrari NV and LiveWire

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

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

Diversification Opportunities for Ferrari NV and LiveWire

0.21

Correlation Coefficient

Ferrari NV  LiveWire

Modest diversification

The 3 months correlation between Ferrari and LiveWire is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and LiveWire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LiveWire Group and Ferrari NV 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 Ferrari NV are associated (or correlated) with LiveWire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LiveWire Group has no effect on the direction of Ferrari NV i.e., Ferrari NV and LiveWire go up and down completely randomly.

Pair Corralation between Ferrari NV and LiveWire

Given the investment horizon of 90 days Ferrari NV is expected to generate 0.55 times more return on investment than LiveWire. However, Ferrari NV is 1.82 times less risky than LiveWire. It trades about -0.09 of its potential returns per unit of risk. LiveWire Group is currently generating about -0.09 per unit of risk. If you would invest  47,803  in Ferrari NV on September 26, 2024 and sell it today you would lose (4,788) from holding Ferrari NV or give up 10.02% of portfolio value over 90 days.

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

Ferrari NV  vs.  LiveWire Group

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

LiveWire Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LiveWire Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Ferrari NV and LiveWire

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

The idea behind Ferrari NV and LiveWire Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.