Can any of the company-specific risk be diversified away by investing in both LSI Industries and Dana 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 LSI Industries and Dana into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LSI Industries and Dana Inc, you can compare the effects of market volatilities on LSI Industries and Dana 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 LSI Industries with a short position of Dana. Check out your portfolio center. Please also check ongoing floating volatility patterns of LSI Industries and Dana.
Diversification Opportunities for LSI Industries and Dana
The 3 months correlation between LSI and Dana is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding LSI Industries and Dana Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Inc and LSI Industries 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 LSI Industries are associated (or correlated) with Dana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Inc has no effect on the direction of LSI Industries i.e., LSI Industries and Dana go up and down completely randomly.
Given the investment horizon of 90 days LSI Industries is expected to generate 1.09 times less return on investment than Dana. In addition to that, LSI Industries is 1.21 times more volatile than Dana Inc. It trades about 0.14 of its total potential returns per unit of risk. Dana Inc is currently generating about 0.18 per unit of volatility. If you would invest 1,327 in Dana Inc on March 6, 2024 and sell it today you would earn a total of 74.00 from holding Dana Inc or generate 5.58% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in LSI Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LSI Industries unveiled solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Dana Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Dana displayed solid returns over the last few months and may actually be approaching a breakup point.