Correlation Between Kangxin New and Lao Feng

Can any of the company-specific risk be diversified away by investing in both Kangxin New and Lao Feng 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 Kangxin New and Lao Feng into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kangxin New Materials and Lao Feng Xiang, you can compare the effects of market volatilities on Kangxin New and Lao Feng 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 Kangxin New with a short position of Lao Feng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kangxin New and Lao Feng.

Diversification Opportunities for Kangxin New and Lao Feng

-0.31

Correlation Coefficient

Kangxin New  Lao Feng

Very good diversification

The 3 months correlation between Kangxin and Lao is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Kangxin New Materials and Lao Feng Xiang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lao Feng Xiang and Kangxin New 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 Kangxin New Materials are associated (or correlated) with Lao Feng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lao Feng Xiang has no effect on the direction of Kangxin New i.e., Kangxin New and Lao Feng go up and down completely randomly.

Pair Corralation between Kangxin New and Lao Feng

Assuming the 90 days trading horizon Kangxin New Materials is expected to under-perform the Lao Feng. But the stock apears to be less risky and, when comparing its historical volatility, Kangxin New Materials is 1.19 times less risky than Lao Feng. The stock trades about -0.53 of its potential returns per unit of risk. The Lao Feng Xiang is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,179  in Lao Feng Xiang on October 8, 2024 and sell it today you would earn a total of  58.00  from holding Lao Feng Xiang or generate 1.12% return on investment over 90 days.

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

Kangxin New Materials  vs.  Lao Feng Xiang

Kangxin New Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lao Feng Xiang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lao Feng Xiang has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Kangxin New and Lao Feng

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

The idea behind Kangxin New Materials and Lao Feng Xiang 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.