Correlation Between Li Kang and Chernan Metal

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

By analyzing existing cross correlation between Li Kang Biomedical and Chernan Metal Industrial, you can compare the effects of market volatilities on Li Kang and Chernan Metal 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 Li Kang with a short position of Chernan Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Kang and Chernan Metal.

Diversification Opportunities for Li Kang and Chernan Metal

0.26

Correlation Coefficient

Li Kang  Chernan Metal

Modest diversification

The 3 months correlation between 6242 and Chernan is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Li Kang Biomedical and Chernan Metal Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chernan Metal Industrial and Li Kang 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 Li Kang Biomedical are associated (or correlated) with Chernan Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chernan Metal Industrial has no effect on the direction of Li Kang i.e., Li Kang and Chernan Metal go up and down completely randomly.

Pair Corralation between Li Kang and Chernan Metal

Assuming the 90 days trading horizon Li Kang Biomedical is expected to generate 0.69 times more return on investment than Chernan Metal. However, Li Kang Biomedical is 1.46 times less risky than Chernan Metal. It trades about 0.04 of its potential returns per unit of risk. Chernan Metal Industrial is currently generating about -0.03 per unit of risk. If you would invest  4,265  in Li Kang Biomedical on December 30, 2024 and sell it today you would earn a total of  145.00  from holding Li Kang Biomedical or generate 3.4% return on investment over 90 days.

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

Li Kang Biomedical  vs.  Chernan Metal Industrial

Li Kang Biomedical

Risk-Adjusted Performance

Insignificant

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

Chernan Metal Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chernan Metal Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chernan Metal 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 Li Kang and Chernan Metal

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

The idea behind Li Kang Biomedical and Chernan Metal Industrial 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.