Correlation Between Asia Optical and LK Engineering

Can any of the company-specific risk be diversified away by investing in both Asia Optical and LK Engineering 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 Asia Optical and LK Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Asia Optical Co and LK Engineering Co, you can compare the effects of market volatilities on Asia Optical and LK Engineering 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 Asia Optical with a short position of LK Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asia Optical and LK Engineering.

Diversification Opportunities for Asia Optical and LK Engineering

-0.41

Correlation Coefficient

Asia Optical  LK Engineering

Very good diversification

The 3 months correlation between Asia and 6139 is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Asia Optical Co and LK Engineering Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LK Engineering and Asia Optical 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 Asia Optical Co are associated (or correlated) with LK Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LK Engineering has no effect on the direction of Asia Optical i.e., Asia Optical and LK Engineering go up and down completely randomly.

Pair Corralation between Asia Optical and LK Engineering

Assuming the 90 days trading horizon Asia Optical is expected to generate 8.54 times less return on investment than LK Engineering. In addition to that, Asia Optical is 1.25 times more volatile than LK Engineering Co. It trades about 0.01 of its total potential returns per unit of risk. LK Engineering Co is currently generating about 0.09 per unit of volatility. If you would invest  20,150  in LK Engineering Co on September 12, 2024 and sell it today you would earn a total of  2,750  from holding LK Engineering Co or generate 13.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Asia Optical Co  vs.  LK Engineering Co

Asia Optical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Optical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Asia Optical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

LK Engineering

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LK Engineering Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, LK Engineering showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asia Optical and LK Engineering

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

The idea behind Asia Optical Co and LK Engineering Co 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.