Correlation Between LK Engineering and BES Engineering

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

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

Diversification Opportunities for LK Engineering and BES Engineering

-0.18

Correlation Coefficient

LK Engineering  BES Engineering

Good diversification

The 3 months correlation between 6139 and BES is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding LK Engineering Co and BES Engineering Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BES Engineering and LK Engineering 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 LK Engineering Co are associated (or correlated) with BES Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BES Engineering has no effect on the direction of LK Engineering i.e., LK Engineering and BES Engineering go up and down completely randomly.

Pair Corralation between LK Engineering and BES Engineering

Assuming the 90 days trading horizon LK Engineering Co is expected to generate 1.31 times more return on investment than BES Engineering. However, LK Engineering is 1.31 times more volatile than BES Engineering Co. It trades about 0.07 of its potential returns per unit of risk. BES Engineering Co is currently generating about -0.05 per unit of risk. If you would invest  22,850  in LK Engineering Co on October 26, 2024 and sell it today you would earn a total of  2,150  from holding LK Engineering Co or generate 9.41% return on investment over 90 days.

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

LK Engineering Co  vs.  BES Engineering Co

LK Engineering

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LK Engineering Co are ranked lower than 5 (%) 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.

BES Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BES Engineering Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, BES Engineering 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 LK Engineering and BES Engineering

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

The idea behind LK Engineering Co and BES 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.