Correlation Between Li Kang and Asia Metal

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

Diversification Opportunities for Li Kang and Asia Metal

0.06

Correlation Coefficient

Li Kang  Asia Metal

Significant diversification

The 3 months correlation between 6242 and Asia is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Li Kang Biomedical and Asia Metal Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Metal Industries 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 Asia Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Metal Industries has no effect on the direction of Li Kang i.e., Li Kang and Asia Metal go up and down completely randomly.

Pair Corralation between Li Kang and Asia Metal

Assuming the 90 days trading horizon Li Kang Biomedical is expected to under-perform the Asia Metal. But the stock apears to be less risky and, when comparing its historical volatility, Li Kang Biomedical is 2.83 times less risky than Asia Metal. The stock trades about -0.06 of its potential returns per unit of risk. The Asia Metal Industries is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,620  in Asia Metal Industries on October 10, 2024 and sell it today you would earn a total of  590.00  from holding Asia Metal Industries or generate 7.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Li Kang Biomedical  vs.  Asia Metal Industries

Li Kang Biomedical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Li Kang Biomedical has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Asia Metal Industries

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Li Kang and Asia Metal

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

The idea behind Li Kang Biomedical and Asia Metal Industries 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.