Correlation Between TECO Electric and Lihtai Construction

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Can any of the company-specific risk be diversified away by investing in both TECO Electric and Lihtai Construction 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 TECO Electric and Lihtai Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TECO Electric Machinery and Lihtai Construction Enterprise, you can compare the effects of market volatilities on TECO Electric and Lihtai Construction 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 TECO Electric with a short position of Lihtai Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of TECO Electric and Lihtai Construction.

Diversification Opportunities for TECO Electric and Lihtai Construction

-0.37
  Correlation Coefficient

Very good diversification

The 3 months correlation between TECO and Lihtai is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding TECO Electric Machinery and Lihtai Construction Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lihtai Construction and TECO Electric 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 TECO Electric Machinery are associated (or correlated) with Lihtai Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lihtai Construction has no effect on the direction of TECO Electric i.e., TECO Electric and Lihtai Construction go up and down completely randomly.

Pair Corralation between TECO Electric and Lihtai Construction

Assuming the 90 days trading horizon TECO Electric Machinery is expected to generate 1.44 times more return on investment than Lihtai Construction. However, TECO Electric is 1.44 times more volatile than Lihtai Construction Enterprise. It trades about 0.07 of its potential returns per unit of risk. Lihtai Construction Enterprise is currently generating about 0.07 per unit of risk. If you would invest  2,800  in TECO Electric Machinery on August 30, 2024 and sell it today you would earn a total of  2,500  from holding TECO Electric Machinery or generate 89.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

TECO Electric Machinery  vs.  Lihtai Construction Enterprise

 Performance 
       Timeline  
TECO Electric Machinery 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in TECO Electric Machinery are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, TECO Electric may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Lihtai Construction 

Risk-Adjusted Performance

0 of 100

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

TECO Electric and Lihtai Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with TECO Electric and Lihtai Construction

The main advantage of trading using opposite TECO Electric and Lihtai Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TECO Electric position performs unexpectedly, Lihtai Construction 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 Lihtai Construction will offset losses from the drop in Lihtai Construction's long position.
The idea behind TECO Electric Machinery and Lihtai Construction Enterprise 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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