Can any of the company-specific risk be diversified away by investing in both Lyxor 1 and GREENX METALS 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 Lyxor 1 and GREENX METALS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lyxor 1 and GREENX METALS LTD, you can compare the effects of market volatilities on Lyxor 1 and GREENX METALS 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 Lyxor 1 with a short position of GREENX METALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lyxor 1 and GREENX METALS.
Diversification Opportunities for Lyxor 1 and GREENX METALS
The 3 months correlation between Lyxor and GREENX is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor 1 - and GREENX METALS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GREENX METALS LTD and Lyxor 1 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 Lyxor 1 are associated (or correlated) with GREENX METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GREENX METALS LTD has no effect on the direction of Lyxor 1 i.e., Lyxor 1 and GREENX METALS go up and down completely randomly.
Pair Corralation between Lyxor 1 and GREENX METALS
Assuming the 90 days trading horizon Lyxor 1 is expected to generate 0.21 times more return on investment than GREENX METALS. However, Lyxor 1 is 4.66 times less risky than GREENX METALS. It trades about 0.38 of its potential returns per unit of risk. GREENX METALS LTD is currently generating about 0.0 per unit of risk. If you would invest 2,180 in Lyxor 1 on September 7, 2023 and sell it today you would earn a total of 173.00 from holding Lyxor 1 or generate 7.94% return on investment over 90 days.
Over the last 90 days Lyxor 1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lyxor 1 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Over the last 90 days GREENX METALS LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, GREENX METALS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
The main advantage of trading using opposite Lyxor 1 and GREENX METALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lyxor 1 position performs unexpectedly, GREENX METALS 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 GREENX METALS will offset losses from the drop in GREENX METALS's long position.
The idea behind Lyxor 1 and GREENX METALS LTD 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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