Correlation Between Lung Hwa and Kindom Construction

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

By analyzing existing cross correlation between Lung Hwa Electronics and Kindom Construction Corp, you can compare the effects of market volatilities on Lung Hwa and Kindom 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 Lung Hwa with a short position of Kindom Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lung Hwa and Kindom Construction.

Diversification Opportunities for Lung Hwa and Kindom Construction

0.22

Correlation Coefficient

Lung Hwa  Kindom Construction

Modest diversification

The 3 months correlation between Lung and Kindom is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Lung Hwa Electronics and Kindom Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kindom Construction Corp and Lung Hwa 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 Lung Hwa Electronics are associated (or correlated) with Kindom Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kindom Construction Corp has no effect on the direction of Lung Hwa i.e., Lung Hwa and Kindom Construction go up and down completely randomly.

Pair Corralation between Lung Hwa and Kindom Construction

Assuming the 90 days trading horizon Lung Hwa Electronics is expected to under-perform the Kindom Construction. In addition to that, Lung Hwa is 1.07 times more volatile than Kindom Construction Corp. It trades about -0.05 of its total potential returns per unit of risk. Kindom Construction Corp is currently generating about 0.18 per unit of volatility. If you would invest  5,070  in Kindom Construction Corp on December 21, 2024 and sell it today you would earn a total of  750.00  from holding Kindom Construction Corp or generate 14.79% return on investment over 90 days.

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

Lung Hwa Electronics  vs.  Kindom Construction Corp

Lung Hwa Electronics

Risk-Adjusted Performance

Very Weak

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

Kindom Construction Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kindom Construction Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kindom Construction showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lung Hwa and Kindom Construction

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

The idea behind Lung Hwa Electronics and Kindom Construction Corp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.