Correlation Between Loctek Ergonomic and Nanhua Bio

Can any of the company-specific risk be diversified away by investing in both Loctek Ergonomic and Nanhua Bio 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 Loctek Ergonomic and Nanhua Bio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Loctek Ergonomic Technology and Nanhua Bio Medicine, you can compare the effects of market volatilities on Loctek Ergonomic and Nanhua Bio 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 Loctek Ergonomic with a short position of Nanhua Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loctek Ergonomic and Nanhua Bio.

Diversification Opportunities for Loctek Ergonomic and Nanhua Bio

0.83

Correlation Coefficient

Loctek Ergonomic  Nanhua Bio

Very poor diversification

The 3 months correlation between Loctek and Nanhua is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Loctek Ergonomic Technology and Nanhua Bio Medicine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanhua Bio Medicine and Loctek Ergonomic 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 Loctek Ergonomic Technology are associated (or correlated) with Nanhua Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanhua Bio Medicine has no effect on the direction of Loctek Ergonomic i.e., Loctek Ergonomic and Nanhua Bio go up and down completely randomly.

Pair Corralation between Loctek Ergonomic and Nanhua Bio

Assuming the 90 days trading horizon Loctek Ergonomic Technology is expected to under-perform the Nanhua Bio. In addition to that, Loctek Ergonomic is 1.06 times more volatile than Nanhua Bio Medicine. It trades about 0.0 of its total potential returns per unit of risk. Nanhua Bio Medicine is currently generating about 0.12 per unit of volatility. If you would invest  915.00  in Nanhua Bio Medicine on September 19, 2024 and sell it today you would earn a total of  56.00  from holding Nanhua Bio Medicine or generate 6.12% return on investment over 90 days.

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

Loctek Ergonomic Technology  vs.  Nanhua Bio Medicine

Loctek Ergonomic Tec

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Loctek Ergonomic Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Loctek Ergonomic sustained solid returns over the last few months and may actually be approaching a breakup point.

Nanhua Bio Medicine

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nanhua Bio Medicine are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanhua Bio sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Loctek Ergonomic and Nanhua Bio

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

The idea behind Loctek Ergonomic Technology and Nanhua Bio Medicine 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.