Correlation Between Li Kang and Johnson Chemical

Can any of the company-specific risk be diversified away by investing in both Li Kang and Johnson Chemical 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 Johnson Chemical 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 Johnson Chemical Pharmaceutical, you can compare the effects of market volatilities on Li Kang and Johnson Chemical 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 Johnson Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Kang and Johnson Chemical.

Diversification Opportunities for Li Kang and Johnson Chemical

0.49

Correlation Coefficient

Li Kang  Johnson Chemical

Very weak diversification

The 3 months correlation between 6242 and Johnson is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Li Kang Biomedical and Johnson Chemical Pharmaceutica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Chemical Pha 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 Johnson Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Chemical Pha has no effect on the direction of Li Kang i.e., Li Kang and Johnson Chemical go up and down completely randomly.

Pair Corralation between Li Kang and Johnson Chemical

Assuming the 90 days trading horizon Li Kang is expected to generate 1.4 times less return on investment than Johnson Chemical. But when comparing it to its historical volatility, Li Kang Biomedical is 1.09 times less risky than Johnson Chemical. It trades about 0.04 of its potential returns per unit of risk. Johnson Chemical Pharmaceutical is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,970  in Johnson Chemical Pharmaceutical on December 28, 2024 and sell it today you would earn a total of  340.00  from holding Johnson Chemical Pharmaceutical or generate 4.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.21%
Values	Daily Returns

Li Kang Biomedical  vs.  Johnson Chemical Pharmaceutica

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.

Johnson Chemical Pha

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Chemical Pharmaceutical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Johnson Chemical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Li Kang and Johnson Chemical

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

The idea behind Li Kang Biomedical and Johnson Chemical Pharmaceutical 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.