Correlation Between China Metal and Lihtai Construction

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

By analyzing existing cross correlation between China Metal Products and Lihtai Construction Enterprise, you can compare the effects of market volatilities on China Metal and Lihtai Construction 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 Metal with a short position of Lihtai Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Metal and Lihtai Construction.

Diversification Opportunities for China Metal and Lihtai Construction

0.03

Correlation Coefficient

China Metal  Lihtai Construction

Significant diversification

The 3 months correlation between China and Lihtai is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and Lihtai Construction Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lihtai Construction and China Metal 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 Metal Products are associated (or correlated) with Lihtai Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lihtai Construction has no effect on the direction of China Metal i.e., China Metal and Lihtai Construction go up and down completely randomly.

Pair Corralation between China Metal and Lihtai Construction

Assuming the 90 days trading horizon China Metal Products is expected to under-perform the Lihtai Construction. In addition to that, China Metal is 3.2 times more volatile than Lihtai Construction Enterprise. It trades about -0.19 of its total potential returns per unit of risk. Lihtai Construction Enterprise is currently generating about 0.14 per unit of volatility. If you would invest  8,060  in Lihtai Construction Enterprise on September 16, 2024 and sell it today you would earn a total of  90.00  from holding Lihtai Construction Enterprise or generate 1.12% return on investment over 90 days.

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

China Metal Products  vs.  Lihtai Construction Enterprise

China Metal Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Metal Products 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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Lihtai Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lihtai Construction Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lihtai Construction is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Metal and Lihtai Construction

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

The idea behind China Metal Products and Lihtai Construction Enterprise 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.