Correlation Between LongDa Construction and LK Engineering

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

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

Diversification Opportunities for LongDa Construction and LK Engineering

0.39

Correlation Coefficient

LongDa Construction  LK Engineering

Weak diversification

The 3 months correlation between LongDa and 6139 is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding LongDa Construction Developmen and LK Engineering Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LK Engineering and LongDa Construction 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 LongDa Construction Development 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 LongDa Construction i.e., LongDa Construction and LK Engineering go up and down completely randomly.

Pair Corralation between LongDa Construction and LK Engineering

Assuming the 90 days trading horizon LongDa Construction is expected to generate 2.45 times less return on investment than LK Engineering. But when comparing it to its historical volatility, LongDa Construction Development is 1.46 times less risky than LK Engineering. It trades about 0.12 of its potential returns per unit of risk. LK Engineering Co is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  20,550  in LK Engineering Co on December 21, 2024 and sell it today you would earn a total of  5,650  from holding LK Engineering Co or generate 27.49% return on investment over 90 days.

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

LongDa Construction Developmen  vs.  LK Engineering Co

LongDa Construction

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LongDa Construction Development are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, LongDa Construction may actually be approaching a critical reversion point that can send shares even higher in April 2025.

LK Engineering

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LK Engineering Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, LK Engineering showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LongDa Construction and LK Engineering

The main advantage of trading using opposite LongDa Construction and LK Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LongDa Construction 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 LongDa Construction Development 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.