Correlation Between Long Yuan and Kuang Chi

Can any of the company-specific risk be diversified away by investing in both Long Yuan and Kuang Chi 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 Long Yuan and Kuang Chi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Long Yuan Construction and Kuang Chi Technologies, you can compare the effects of market volatilities on Long Yuan and Kuang Chi 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 Long Yuan with a short position of Kuang Chi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Yuan and Kuang Chi.

Diversification Opportunities for Long Yuan and Kuang Chi

0.01

Correlation Coefficient

Long Yuan  Kuang Chi

Significant diversification

The 3 months correlation between Long and Kuang is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Long Yuan Construction and Kuang Chi Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuang Chi Technologies and Long Yuan 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 Long Yuan Construction are associated (or correlated) with Kuang Chi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuang Chi Technologies has no effect on the direction of Long Yuan i.e., Long Yuan and Kuang Chi go up and down completely randomly.

Pair Corralation between Long Yuan and Kuang Chi

Assuming the 90 days trading horizon Long Yuan Construction is expected to generate 0.81 times more return on investment than Kuang Chi. However, Long Yuan Construction is 1.23 times less risky than Kuang Chi. It trades about 0.03 of its potential returns per unit of risk. Kuang Chi Technologies is currently generating about -0.03 per unit of risk. If you would invest  384.00  in Long Yuan Construction on December 24, 2024 and sell it today you would earn a total of  10.00  from holding Long Yuan Construction or generate 2.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Long Yuan Construction  vs.  Kuang Chi Technologies

Long Yuan Construction

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Long Yuan Construction are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Long Yuan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kuang Chi Technologies

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Long Yuan and Kuang Chi

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

The idea behind Long Yuan Construction and Kuang Chi Technologies 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.