Correlation Between ENERGYMACHINERY KOREA and LAKE MATERIALS

Can any of the company-specific risk be diversified away by investing in both ENERGYMACHINERY KOREA and LAKE MATERIALS 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 ENERGYMACHINERY KOREA and LAKE MATERIALS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ENERGYMACHINERY KOREA CoLtd and LAKE MATERIALS LTD, you can compare the effects of market volatilities on ENERGYMACHINERY KOREA and LAKE MATERIALS 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 ENERGYMACHINERY KOREA with a short position of LAKE MATERIALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of ENERGYMACHINERY KOREA and LAKE MATERIALS.

Diversification Opportunities for ENERGYMACHINERY KOREA and LAKE MATERIALS

0.71

Correlation Coefficient

ENERGYMACHINERY KOREA  LAKE MATERIALS

Poor diversification

The 3 months correlation between ENERGYMACHINERY and LAKE is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding ENERGYMACHINERY KOREA CoLtd and LAKE MATERIALS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAKE MATERIALS LTD and ENERGYMACHINERY KOREA 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 ENERGYMACHINERY KOREA CoLtd are associated (or correlated) with LAKE MATERIALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAKE MATERIALS LTD has no effect on the direction of ENERGYMACHINERY KOREA i.e., ENERGYMACHINERY KOREA and LAKE MATERIALS go up and down completely randomly.

Pair Corralation between ENERGYMACHINERY KOREA and LAKE MATERIALS

Assuming the 90 days trading horizon ENERGYMACHINERY KOREA CoLtd is expected to generate 0.84 times more return on investment than LAKE MATERIALS. However, ENERGYMACHINERY KOREA CoLtd is 1.19 times less risky than LAKE MATERIALS. It trades about 0.22 of its potential returns per unit of risk. LAKE MATERIALS LTD is currently generating about -0.04 per unit of risk. If you would invest  198,300  in ENERGYMACHINERY KOREA CoLtd on September 25, 2024 and sell it today you would earn a total of  31,200  from holding ENERGYMACHINERY KOREA CoLtd or generate 15.73% return on investment over 90 days.

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

ENERGYMACHINERY KOREA CoLtd  vs.  LAKE MATERIALS LTD

ENERGYMACHINERY KOREA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ENERGYMACHINERY KOREA CoLtd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ENERGYMACHINERY KOREA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LAKE MATERIALS LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LAKE MATERIALS LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with ENERGYMACHINERY KOREA and LAKE MATERIALS

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

The idea behind ENERGYMACHINERY KOREA CoLtd and LAKE MATERIALS LTD 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.