Correlation Between Continental Holdings and LK Engineering

Can any of the company-specific risk be diversified away by investing in both Continental Holdings and LK Engineering 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 Continental Holdings and LK Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Continental Holdings Corp and LK Engineering Co, you can compare the effects of market volatilities on Continental Holdings and LK Engineering 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 Continental Holdings with a short position of LK Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Continental Holdings and LK Engineering.

Diversification Opportunities for Continental Holdings and LK Engineering

-0.08

Correlation Coefficient

Continental Holdings  LK Engineering

Good diversification

The 3 months correlation between Continental and 6139 is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Continental Holdings Corp and LK Engineering Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LK Engineering and Continental Holdings 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 Continental Holdings Corp are associated (or correlated) with LK Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LK Engineering has no effect on the direction of Continental Holdings i.e., Continental Holdings and LK Engineering go up and down completely randomly.

Pair Corralation between Continental Holdings and LK Engineering

Assuming the 90 days trading horizon Continental Holdings Corp is expected to under-perform the LK Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Continental Holdings Corp is 3.1 times less risky than LK Engineering. The stock trades about -0.05 of its potential returns per unit of risk. The LK Engineering Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  22,900  in LK Engineering Co on October 11, 2024 and sell it today you would earn a total of  650.00  from holding LK Engineering Co or generate 2.84% return on investment over 90 days.

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

Continental Holdings Corp  vs.  LK Engineering Co

Continental Holdings Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

LK Engineering

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LK Engineering Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, LK Engineering may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Continental Holdings and LK Engineering

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

The idea behind Continental Holdings Corp and LK Engineering 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.

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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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.