Correlation Between Kaimei Electronic and Century Wind

Can any of the company-specific risk be diversified away by investing in both Kaimei Electronic and Century Wind 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 Kaimei Electronic and Century Wind into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kaimei Electronic Corp and Century Wind Power, you can compare the effects of market volatilities on Kaimei Electronic and Century Wind 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 Kaimei Electronic with a short position of Century Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kaimei Electronic and Century Wind.

Diversification Opportunities for Kaimei Electronic and Century Wind

0.33

Correlation Coefficient

Kaimei Electronic  Century Wind

Weak diversification

The 3 months correlation between Kaimei and Century is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Kaimei Electronic Corp and Century Wind Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Wind Power and Kaimei Electronic 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 Kaimei Electronic Corp are associated (or correlated) with Century Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Wind Power has no effect on the direction of Kaimei Electronic i.e., Kaimei Electronic and Century Wind go up and down completely randomly.

Pair Corralation between Kaimei Electronic and Century Wind

Assuming the 90 days trading horizon Kaimei Electronic Corp is expected to under-perform the Century Wind. But the stock apears to be less risky and, when comparing its historical volatility, Kaimei Electronic Corp is 1.19 times less risky than Century Wind. The stock trades about -0.07 of its potential returns per unit of risk. The Century Wind Power is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  28,950  in Century Wind Power on December 29, 2024 and sell it today you would lose (1,600) from holding Century Wind Power or give up 5.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.25%
Values	Daily Returns

Kaimei Electronic Corp  vs.  Century Wind Power

Kaimei Electronic Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kaimei Electronic Corp 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.

Century Wind Power

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Kaimei Electronic and Century Wind

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

The idea behind Kaimei Electronic Corp and Century Wind Power 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.