Correlation Between LK Engineering and Continental Holdings

Can any of the company-specific risk be diversified away by investing in both LK Engineering and Continental Holdings 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 Continental Holdings 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 Continental Holdings Corp, you can compare the effects of market volatilities on LK Engineering and Continental Holdings 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 Continental Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of LK Engineering and Continental Holdings.

Diversification Opportunities for LK Engineering and Continental Holdings

-0.08

Correlation Coefficient

LK Engineering  Continental Holdings

Good diversification

The 3 months correlation between 6139 and Continental is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding LK Engineering Co and Continental Holdings Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental Holdings Corp 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 Continental Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental Holdings Corp has no effect on the direction of LK Engineering i.e., LK Engineering and Continental Holdings go up and down completely randomly.

Pair Corralation between LK Engineering and Continental Holdings

Assuming the 90 days trading horizon LK Engineering Co is expected to generate 1.36 times more return on investment than Continental Holdings. However, LK Engineering is 1.36 times more volatile than Continental Holdings Corp. It trades about 0.07 of its potential returns per unit of risk. Continental Holdings Corp 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.  Continental Holdings Corp

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.

Continental Holdings Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Continental Holdings Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Continental Holdings is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with LK Engineering and Continental Holdings

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

The idea behind LK Engineering Co and Continental Holdings Corp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.