Correlation Between Van De and Lotus Bakeries

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

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

Diversification Opportunities for Van De and Lotus Bakeries

0.58

Correlation Coefficient

Van De  Lotus Bakeries

Very weak diversification

The 3 months correlation between Van and Lotus is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Van de Velde and Lotus Bakeries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Bakeries and Van De 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 Van de Velde are associated (or correlated) with Lotus Bakeries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Bakeries has no effect on the direction of Van De i.e., Van De and Lotus Bakeries go up and down completely randomly.

Pair Corralation between Van De and Lotus Bakeries

Assuming the 90 days trading horizon Van de Velde is expected to under-perform the Lotus Bakeries. But the stock apears to be less risky and, when comparing its historical volatility, Van de Velde is 1.28 times less risky than Lotus Bakeries. The stock trades about -0.09 of its potential returns per unit of risk. The Lotus Bakeries is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,158,000  in Lotus Bakeries on September 5, 2024 and sell it today you would lose (26,000) from holding Lotus Bakeries or give up 2.25% of portfolio value over 90 days.

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

Van de Velde  vs.  Lotus Bakeries

Van de Velde

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Van De and Lotus Bakeries

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

The idea behind Van de Velde and Lotus Bakeries 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.