Correlation Between Li Ning and Adidas AG

Can any of the company-specific risk be diversified away by investing in both Li Ning and Adidas AG 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 Adidas AG 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 adidas AG, you can compare the effects of market volatilities on Li Ning and Adidas AG 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 Adidas AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Ning and Adidas AG.

Diversification Opportunities for Li Ning and Adidas AG

0.34

Correlation Coefficient

Li Ning  Adidas AG

Weak diversification

The 3 months correlation between LNLB and Adidas is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Li Ning Company and adidas AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on adidas AG 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 Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of adidas AG has no effect on the direction of Li Ning i.e., Li Ning and Adidas AG go up and down completely randomly.

Pair Corralation between Li Ning and Adidas AG

Assuming the 90 days trading horizon Li Ning is expected to generate 1.61 times less return on investment than Adidas AG. In addition to that, Li Ning is 2.44 times more volatile than adidas AG. It trades about 0.06 of its total potential returns per unit of risk. adidas AG is currently generating about 0.25 per unit of volatility. If you would invest  18,256  in adidas AG on March 3, 2024 and sell it today you would earn a total of  4,834  from holding adidas AG or generate 26.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Li Ning Company  vs.  adidas AG

Li Ning Company

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Li Ning Company are ranked lower than 5 (%) 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.

adidas AG

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in adidas AG are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Adidas AG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Li Ning and Adidas AG

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

The idea behind Li Ning Company and adidas AG 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.