Correlation Between Lenovo and Seagate Technology

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

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

Diversification Opportunities for Lenovo and Seagate Technology

0.4

Correlation Coefficient

Lenovo  Seagate Technology

Very weak diversification

The 3 months correlation between Lenovo and Seagate is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Lenovo Group and Seagate Technology PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seagate Technology PLC and Lenovo 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 Lenovo Group are associated (or correlated) with Seagate Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seagate Technology PLC has no effect on the direction of Lenovo i.e., Lenovo and Seagate Technology go up and down completely randomly.

Pair Corralation between Lenovo and Seagate Technology

Assuming the 90 days horizon Lenovo is expected to generate 1.55 times less return on investment than Seagate Technology. In addition to that, Lenovo is 1.99 times more volatile than Seagate Technology PLC. It trades about 0.03 of its total potential returns per unit of risk. Seagate Technology PLC is currently generating about 0.1 per unit of volatility. If you would invest  5,635  in Seagate Technology PLC on January 25, 2024 and sell it today you would earn a total of  3,018  from holding Seagate Technology PLC or generate 53.56% return on investment over 90 days.

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

Lenovo Group  vs.  Seagate Technology PLC

Lenovo Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lenovo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Seagate Technology PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seagate Technology PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Seagate Technology is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lenovo and Seagate Technology

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

The idea behind Lenovo Group and Seagate Technology PLC 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.