Correlation Between Li Kang and Century Wind

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

Diversification Opportunities for Li Kang and Century Wind

0.71

Correlation Coefficient

Li Kang  Century Wind

Poor diversification

The 3 months correlation between 6242 and Century is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Li Kang Biomedical and Century Wind Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Wind Power 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 Century Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Wind Power has no effect on the direction of Li Kang i.e., Li Kang and Century Wind go up and down completely randomly.

Pair Corralation between Li Kang and Century Wind

Assuming the 90 days trading horizon Li Kang is expected to generate 11.1 times less return on investment than Century Wind. But when comparing it to its historical volatility, Li Kang Biomedical is 1.49 times less risky than Century Wind. It trades about 0.01 of its potential returns per unit of risk. Century Wind Power is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11,710  in Century Wind Power on September 29, 2024 and sell it today you would earn a total of  17,090  from holding Century Wind Power or generate 145.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Li Kang Biomedical  vs.  Century Wind Power

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.

Century Wind Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Wind Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Li Kang and Century Wind

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

The idea behind Li Kang Biomedical and Century Wind Power 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.