Correlation Between Lee Chi and Roundtop Machinery

Can any of the company-specific risk be diversified away by investing in both Lee Chi and Roundtop Machinery 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 Lee Chi and Roundtop Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lee Chi Enterprises and Roundtop Machinery Industries, you can compare the effects of market volatilities on Lee Chi and Roundtop Machinery 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 Lee Chi with a short position of Roundtop Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lee Chi and Roundtop Machinery.

Diversification Opportunities for Lee Chi and Roundtop Machinery

0.75

Correlation Coefficient

Lee Chi  Roundtop Machinery

Poor diversification

The 3 months correlation between Lee and Roundtop is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Lee Chi Enterprises and Roundtop Machinery Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roundtop Machinery and Lee Chi 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 Lee Chi Enterprises are associated (or correlated) with Roundtop Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roundtop Machinery has no effect on the direction of Lee Chi i.e., Lee Chi and Roundtop Machinery go up and down completely randomly.

Pair Corralation between Lee Chi and Roundtop Machinery

Assuming the 90 days trading horizon Lee Chi Enterprises is expected to generate 0.36 times more return on investment than Roundtop Machinery. However, Lee Chi Enterprises is 2.77 times less risky than Roundtop Machinery. It trades about 0.07 of its potential returns per unit of risk. Roundtop Machinery Industries is currently generating about -0.04 per unit of risk. If you would invest  1,410  in Lee Chi Enterprises on December 21, 2024 and sell it today you would earn a total of  55.00  from holding Lee Chi Enterprises or generate 3.9% return on investment over 90 days.

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

Lee Chi Enterprises  vs.  Roundtop Machinery Industries

Lee Chi Enterprises

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lee Chi Enterprises are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lee Chi is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Roundtop Machinery

Risk-Adjusted Performance

Very Weak

Over the last 90 days Roundtop Machinery Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal 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 Lee Chi and Roundtop Machinery

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

The idea behind Lee Chi Enterprises and Roundtop Machinery Industries 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..