Correlation Between Lemon Tree and Kingfa Science

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

By analyzing existing cross correlation between Lemon Tree Hotels and Kingfa Science Technology, you can compare the effects of market volatilities on Lemon Tree and Kingfa Science 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 Lemon Tree with a short position of Kingfa Science. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lemon Tree and Kingfa Science.

Diversification Opportunities for Lemon Tree and Kingfa Science

0.72

Correlation Coefficient

Lemon Tree  Kingfa Science

Poor diversification

The 3 months correlation between Lemon and Kingfa is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Lemon Tree Hotels and Kingfa Science Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingfa Science Technology and Lemon Tree 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 Lemon Tree Hotels are associated (or correlated) with Kingfa Science. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingfa Science Technology has no effect on the direction of Lemon Tree i.e., Lemon Tree and Kingfa Science go up and down completely randomly.

Pair Corralation between Lemon Tree and Kingfa Science

Assuming the 90 days trading horizon Lemon Tree Hotels is expected to under-perform the Kingfa Science. But the stock apears to be less risky and, when comparing its historical volatility, Lemon Tree Hotels is 1.19 times less risky than Kingfa Science. The stock trades about -0.03 of its potential returns per unit of risk. The Kingfa Science Technology is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  309,490  in Kingfa Science Technology on December 1, 2024 and sell it today you would lose (19,920) from holding Kingfa Science Technology or give up 6.44% of portfolio value over 90 days.

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

Lemon Tree Hotels  vs.  Kingfa Science Technology

Lemon Tree Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lemon Tree Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Lemon Tree is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Kingfa Science Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kingfa Science Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Kingfa Science is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lemon Tree and Kingfa Science

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

The idea behind Lemon Tree Hotels and Kingfa Science Technology 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 Commodity Directory module to find actively traded commodities issued by global exchanges.