Correlation Between Luolai Home and GKHT Medical

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

By analyzing existing cross correlation between Luolai Home Textile and GKHT Medical Technology, you can compare the effects of market volatilities on Luolai Home and GKHT Medical 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 Luolai Home with a short position of GKHT Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luolai Home and GKHT Medical.

Diversification Opportunities for Luolai Home and GKHT Medical

0.39

Correlation Coefficient

Luolai Home  GKHT Medical

Weak diversification

The 3 months correlation between Luolai and GKHT is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Luolai Home Textile and GKHT Medical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GKHT Medical Technology and Luolai Home 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 Luolai Home Textile are associated (or correlated) with GKHT Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GKHT Medical Technology has no effect on the direction of Luolai Home i.e., Luolai Home and GKHT Medical go up and down completely randomly.

Pair Corralation between Luolai Home and GKHT Medical

Assuming the 90 days trading horizon Luolai Home Textile is expected to generate 0.47 times more return on investment than GKHT Medical. However, Luolai Home Textile is 2.12 times less risky than GKHT Medical. It trades about -0.03 of its potential returns per unit of risk. GKHT Medical Technology is currently generating about -0.05 per unit of risk. If you would invest  1,050  in Luolai Home Textile on October 4, 2024 and sell it today you would lose (270.00) from holding Luolai Home Textile or give up 25.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	75.47%
Values	Daily Returns

Luolai Home Textile  vs.  GKHT Medical Technology

Luolai Home Textile

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Luolai Home Textile are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Luolai Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

GKHT Medical Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GKHT Medical Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Luolai Home and GKHT Medical

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

The idea behind Luolai Home Textile and GKHT Medical Technology 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.