Correlation Between Lonza Group and Koninklijke Philips

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

By analyzing existing cross correlation between Lonza Group AG and Koninklijke Philips NV, you can compare the effects of market volatilities on Lonza Group and Koninklijke Philips 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 Lonza Group with a short position of Koninklijke Philips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lonza Group and Koninklijke Philips.

Diversification Opportunities for Lonza Group and Koninklijke Philips

-0.79

Correlation Coefficient

Lonza Group  Koninklijke Philips

Pay attention - limited upside

The 3 months correlation between Lonza and Koninklijke is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Lonza Group AG and Koninklijke Philips NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke Philips and Lonza Group 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 Lonza Group AG are associated (or correlated) with Koninklijke Philips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke Philips has no effect on the direction of Lonza Group i.e., Lonza Group and Koninklijke Philips go up and down completely randomly.

Pair Corralation between Lonza Group and Koninklijke Philips

Assuming the 90 days horizon Lonza Group AG is expected to generate 1.31 times more return on investment than Koninklijke Philips. However, Lonza Group is 1.31 times more volatile than Koninklijke Philips NV. It trades about 0.17 of its potential returns per unit of risk. Koninklijke Philips NV is currently generating about 0.04 per unit of risk. If you would invest  3,649  in Lonza Group AG on January 19, 2024 and sell it today you would earn a total of  1,916  from holding Lonza Group AG or generate 52.51% return on investment over 90 days.

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

Lonza Group AG  vs.  Koninklijke Philips NV

Lonza Group AG

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lonza Group AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Lonza Group showed solid returns over the last few months and may actually be approaching a breakup point.

Koninklijke Philips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Koninklijke Philips NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical 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.

Pair Trading with Lonza Group and Koninklijke Philips

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

The idea behind Lonza Group AG and Koninklijke Philips NV 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.