Correlation Between Kunyue Development and Lihtai Construction

Can any of the company-specific risk be diversified away by investing in both Kunyue Development and Lihtai Construction 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 Kunyue Development and Lihtai Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kunyue Development Co and Lihtai Construction Enterprise, you can compare the effects of market volatilities on Kunyue Development and Lihtai Construction 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 Kunyue Development with a short position of Lihtai Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kunyue Development and Lihtai Construction.

Diversification Opportunities for Kunyue Development and Lihtai Construction

0.74

Correlation Coefficient

Kunyue Development  Lihtai Construction

Poor diversification

The 3 months correlation between Kunyue and Lihtai is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Kunyue Development Co and Lihtai Construction Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lihtai Construction and Kunyue Development 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 Kunyue Development Co are associated (or correlated) with Lihtai Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lihtai Construction has no effect on the direction of Kunyue Development i.e., Kunyue Development and Lihtai Construction go up and down completely randomly.

Pair Corralation between Kunyue Development and Lihtai Construction

Assuming the 90 days trading horizon Kunyue Development Co is expected to generate 4.8 times more return on investment than Lihtai Construction. However, Kunyue Development is 4.8 times more volatile than Lihtai Construction Enterprise. It trades about 0.15 of its potential returns per unit of risk. Lihtai Construction Enterprise is currently generating about 0.08 per unit of risk. If you would invest  3,445  in Kunyue Development Co on October 25, 2024 and sell it today you would earn a total of  695.00  from holding Kunyue Development Co or generate 20.17% return on investment over 90 days.

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

Kunyue Development Co  vs.  Lihtai Construction Enterprise

Kunyue Development

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kunyue Development Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kunyue Development showed solid returns over the last few months and may actually be approaching a breakup point.

Lihtai Construction

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lihtai Construction Enterprise are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lihtai Construction is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Kunyue Development and Lihtai Construction

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

The idea behind Kunyue Development Co and Lihtai Construction Enterprise 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.