Correlation Between Luolai Home and Kangxin New

Can any of the company-specific risk be diversified away by investing in both Luolai Home and Kangxin New 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 Kangxin New 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 Kangxin New Materials, you can compare the effects of market volatilities on Luolai Home and Kangxin New 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 Kangxin New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luolai Home and Kangxin New.

Diversification Opportunities for Luolai Home and Kangxin New

0.68

Correlation Coefficient

Luolai Home  Kangxin New

Poor diversification

The 3 months correlation between Luolai and Kangxin is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Luolai Home Textile and Kangxin New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kangxin New Materials 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 Kangxin New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kangxin New Materials has no effect on the direction of Luolai Home i.e., Luolai Home and Kangxin New go up and down completely randomly.

Pair Corralation between Luolai Home and Kangxin New

Assuming the 90 days trading horizon Luolai Home Textile is expected to generate 0.54 times more return on investment than Kangxin New. However, Luolai Home Textile is 1.84 times less risky than Kangxin New. It trades about -0.12 of its potential returns per unit of risk. Kangxin New Materials is currently generating about -0.11 per unit of risk. If you would invest  862.00  in Luolai Home Textile on December 11, 2024 and sell it today you would lose (112.00) from holding Luolai Home Textile or give up 12.99% of portfolio value over 90 days.

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

Luolai Home Textile  vs.  Kangxin New Materials

Luolai Home Textile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Luolai Home Textile 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Kangxin New Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kangxin New Materials 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Luolai Home and Kangxin New

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

The idea behind Luolai Home Textile and Kangxin New Materials 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.