Correlation Between Loctek Ergonomic and China Railway

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

Diversification Opportunities for Loctek Ergonomic and China Railway

0.84

Correlation Coefficient

Loctek Ergonomic  China Railway

Very poor diversification

The 3 months correlation between Loctek and China is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Loctek Ergonomic Technology and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr 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 China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Constr has no effect on the direction of Loctek Ergonomic i.e., Loctek Ergonomic and China Railway go up and down completely randomly.

Pair Corralation between Loctek Ergonomic and China Railway

Assuming the 90 days trading horizon Loctek Ergonomic Technology is expected to generate 1.01 times more return on investment than China Railway. However, Loctek Ergonomic is 1.01 times more volatile than China Railway Construction. It trades about 0.13 of its potential returns per unit of risk. China Railway Construction is currently generating about 0.13 per unit of risk. If you would invest  1,383  in Loctek Ergonomic Technology on September 2, 2024 and sell it today you would earn a total of  350.00  from holding Loctek Ergonomic Technology or generate 25.31% 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.  China Railway Construction

Loctek Ergonomic Tec

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loctek Ergonomic Technology are ranked lower than 10 (%) 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.

China Railway Constr

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Loctek Ergonomic and China Railway

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

The idea behind Loctek Ergonomic Technology and China Railway Construction 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.