Correlation Between China Petrochemical and K Laser

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

By analyzing existing cross correlation between China Petrochemical Development and K Laser Technology, you can compare the effects of market volatilities on China Petrochemical and K Laser 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 China Petrochemical with a short position of K Laser. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petrochemical and K Laser.

Diversification Opportunities for China Petrochemical and K Laser

0.3

Correlation Coefficient

China Petrochemical  K Laser

Weak diversification

The 3 months correlation between China and 2461 is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding China Petrochemical Developmen and K Laser Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Laser Technology and China Petrochemical 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 China Petrochemical Development are associated (or correlated) with K Laser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Laser Technology has no effect on the direction of China Petrochemical i.e., China Petrochemical and K Laser go up and down completely randomly.

Pair Corralation between China Petrochemical and K Laser

Assuming the 90 days trading horizon China Petrochemical Development is expected to under-perform the K Laser. In addition to that, China Petrochemical is 1.32 times more volatile than K Laser Technology. It trades about -0.46 of its total potential returns per unit of risk. K Laser Technology is currently generating about -0.3 per unit of volatility. If you would invest  2,080  in K Laser Technology on October 8, 2024 and sell it today you would lose (120.00) from holding K Laser Technology or give up 5.77% of portfolio value over 90 days.

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

China Petrochemical Developmen  vs.  K Laser Technology

China Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Petrochemical Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

K Laser Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days K Laser Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with China Petrochemical and K Laser

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

The idea behind China Petrochemical Development and K Laser 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.