Correlation Between Keyang Electric and Lion Chemtech

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

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

Diversification Opportunities for Keyang Electric and Lion Chemtech

-0.07

Correlation Coefficient

Keyang Electric  Lion Chemtech

Good diversification

The 3 months correlation between Keyang and Lion is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Keyang Electric Machinery and Lion Chemtech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Chemtech and Keyang 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 Keyang Electric Machinery are associated (or correlated) with Lion Chemtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Chemtech has no effect on the direction of Keyang Electric i.e., Keyang Electric and Lion Chemtech go up and down completely randomly.

Pair Corralation between Keyang Electric and Lion Chemtech

Assuming the 90 days trading horizon Keyang Electric Machinery is expected to generate 0.77 times more return on investment than Lion Chemtech. However, Keyang Electric Machinery is 1.3 times less risky than Lion Chemtech. It trades about 0.06 of its potential returns per unit of risk. Lion Chemtech Co is currently generating about 0.05 per unit of risk. If you would invest  357,500  in Keyang Electric Machinery on October 25, 2024 and sell it today you would earn a total of  31,500  from holding Keyang Electric Machinery or generate 8.81% return on investment over 90 days.

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

Keyang Electric Machinery  vs.  Lion Chemtech Co

Keyang Electric Machinery

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Keyang Electric Machinery are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Keyang Electric may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lion Chemtech

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lion Chemtech Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lion Chemtech may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Keyang Electric and Lion Chemtech

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

The idea behind Keyang Electric Machinery and Lion Chemtech Co 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.

Check out your portfolio center.

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.