Correlation Between King Strong and Yangmei Chemical

Can any of the company-specific risk be diversified away by investing in both King Strong and Yangmei Chemical 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 King Strong and Yangmei Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between King Strong New Material and Yangmei Chemical Co, you can compare the effects of market volatilities on King Strong and Yangmei Chemical 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 King Strong with a short position of Yangmei Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of King Strong and Yangmei Chemical.

Diversification Opportunities for King Strong and Yangmei Chemical

0.79

Correlation Coefficient

King Strong  Yangmei Chemical

Poor diversification

The 3 months correlation between King and Yangmei is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding King Strong New Material and Yangmei Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yangmei Chemical and King Strong 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 King Strong New Material are associated (or correlated) with Yangmei Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yangmei Chemical has no effect on the direction of King Strong i.e., King Strong and Yangmei Chemical go up and down completely randomly.

Pair Corralation between King Strong and Yangmei Chemical

Assuming the 90 days trading horizon King Strong New Material is expected to generate 1.0 times more return on investment than Yangmei Chemical. However, King Strong New Material is 1.0 times less risky than Yangmei Chemical. It trades about -0.06 of its potential returns per unit of risk. Yangmei Chemical Co is currently generating about -0.08 per unit of risk. If you would invest  2,313  in King Strong New Material on December 4, 2024 and sell it today you would lose (226.00) from holding King Strong New Material or give up 9.77% of portfolio value over 90 days.

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

King Strong New Material  vs.  Yangmei Chemical Co

King Strong New

Risk-Adjusted Performance

Very Weak

Over the last 90 days King Strong New Material has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Yangmei Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yangmei Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with King Strong and Yangmei Chemical

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

The idea behind King Strong New Material and Yangmei Chemical Co 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.