Correlation Between LAKE MATERIALS and Keyang Electric

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

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

Diversification Opportunities for LAKE MATERIALS and Keyang Electric

0.85

Correlation Coefficient

LAKE MATERIALS  Keyang Electric

Very poor diversification

The 3 months correlation between LAKE and Keyang is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding LAKE MATERIALS LTD and Keyang Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keyang Electric Machinery and LAKE MATERIALS 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 LAKE MATERIALS LTD are associated (or correlated) with Keyang Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keyang Electric Machinery has no effect on the direction of LAKE MATERIALS i.e., LAKE MATERIALS and Keyang Electric go up and down completely randomly.

Pair Corralation between LAKE MATERIALS and Keyang Electric

Assuming the 90 days trading horizon LAKE MATERIALS LTD is expected to under-perform the Keyang Electric. In addition to that, LAKE MATERIALS is 1.02 times more volatile than Keyang Electric Machinery. It trades about -0.04 of its total potential returns per unit of risk. Keyang Electric Machinery is currently generating about 0.2 per unit of volatility. If you would invest  318,500  in Keyang Electric Machinery on September 21, 2024 and sell it today you would earn a total of  49,000  from holding Keyang Electric Machinery or generate 15.38% return on investment over 90 days.

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

LAKE MATERIALS LTD  vs.  Keyang Electric Machinery

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.

Keyang Electric Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Keyang Electric Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Keyang Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LAKE MATERIALS and Keyang Electric

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

The idea behind LAKE MATERIALS LTD and Keyang Electric Machinery 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.