Correlation Between Lion Electric and Primo Water

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

By analyzing existing cross correlation between Lion Electric Corp and Primo Water Corp, you can compare the effects of market volatilities on Lion Electric and Primo Water 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 Lion Electric with a short position of Primo Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lion Electric and Primo Water.

Diversification Opportunities for Lion Electric and Primo Water

-0.43

Correlation Coefficient

Lion Electric  Primo Water

Very good diversification

The 3 months correlation between Lion and Primo is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Lion Electric Corp and Primo Water Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Primo Water Corp and Lion Electric 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 Lion Electric Corp are associated (or correlated) with Primo Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Primo Water Corp has no effect on the direction of Lion Electric i.e., Lion Electric and Primo Water go up and down completely randomly.

Pair Corralation between Lion Electric and Primo Water

Assuming the 90 days trading horizon Lion Electric Corp is expected to under-perform the Primo Water. In addition to that, Lion Electric is 2.98 times more volatile than Primo Water Corp. It trades about -0.32 of its total potential returns per unit of risk. Primo Water Corp is currently generating about 0.0 per unit of volatility. If you would invest  3,755  in Primo Water Corp on August 18, 2024 and sell it today you would lose (15.00) from holding Primo Water Corp or give up 0.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	86.96%
Values	Daily Returns

Lion Electric Corp  vs.  Primo Water Corp

Lion Electric Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lion Electric Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Primo Water Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Primo Water Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Primo Water displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lion Electric and Primo Water

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

The idea behind Lion Electric Corp and Primo Water Corp 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.