Correlation Between Qudian and LM Funding

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

By analyzing existing cross correlation between Qudian Inc and LM Funding America, you can compare the effects of market volatilities on Qudian and LM Funding 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 Qudian with a short position of LM Funding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qudian and LM Funding.

Diversification Opportunities for Qudian and LM Funding

0.29

Correlation Coefficient

Qudian  LM Funding

Modest diversification

The 3 months correlation between Qudian and LMFA is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Qudian Inc and LM Funding America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LM Funding America and Qudian 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 Qudian Inc are associated (or correlated) with LM Funding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LM Funding America has no effect on the direction of Qudian i.e., Qudian and LM Funding go up and down completely randomly.

Pair Corralation between Qudian and LM Funding

Allowing for the 90-day total investment horizon Qudian Inc is expected to generate 0.44 times more return on investment than LM Funding. However, Qudian Inc is 2.27 times less risky than LM Funding. It trades about 0.1 of its potential returns per unit of risk. LM Funding America is currently generating about 0.0 per unit of risk. If you would invest  128.00  in Qudian Inc on February 3, 2024 and sell it today you would earn a total of  122.00  from holding Qudian Inc or generate 95.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Qudian Inc  vs.  LM Funding America

Qudian Inc

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Qudian Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal fundamental indicators, Qudian exhibited solid returns over the last few months and may actually be approaching a breakup point.

LM Funding America

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LM Funding America are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal technical and fundamental indicators, LM Funding may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Qudian and LM Funding

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

The idea behind Qudian Inc and LM Funding America 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.