Correlation Between Loctek Ergonomic and Hengli Industrial

Can any of the company-specific risk be diversified away by investing in both Loctek Ergonomic and Hengli Industrial 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 Hengli Industrial 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 Hengli Industrial Development, you can compare the effects of market volatilities on Loctek Ergonomic and Hengli Industrial 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 Hengli Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loctek Ergonomic and Hengli Industrial.

Diversification Opportunities for Loctek Ergonomic and Hengli Industrial

0.25

Correlation Coefficient

Loctek Ergonomic  Hengli Industrial

Modest diversification

The 3 months correlation between Loctek and Hengli is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Loctek Ergonomic Technology and Hengli Industrial Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengli Industrial 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 Hengli Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengli Industrial has no effect on the direction of Loctek Ergonomic i.e., Loctek Ergonomic and Hengli Industrial go up and down completely randomly.

Pair Corralation between Loctek Ergonomic and Hengli Industrial

Assuming the 90 days trading horizon Loctek Ergonomic is expected to generate 33.62 times less return on investment than Hengli Industrial. But when comparing it to its historical volatility, Loctek Ergonomic Technology is 1.45 times less risky than Hengli Industrial. It trades about 0.01 of its potential returns per unit of risk. Hengli Industrial Development is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  196.00  in Hengli Industrial Development on December 25, 2024 and sell it today you would earn a total of  82.00  from holding Hengli Industrial Development or generate 41.84% return on investment over 90 days.

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

Loctek Ergonomic Technology  vs.  Hengli Industrial Development

Loctek Ergonomic Tec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Loctek Ergonomic Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Loctek Ergonomic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hengli Industrial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Industrial Development are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengli Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Loctek Ergonomic and Hengli Industrial

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

The idea behind Loctek Ergonomic Technology and Hengli Industrial Development 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.