Correlation Between Li Kang and Johnson Chemical
Can any of the company-specific risk be diversified away by investing in both Li Kang and Johnson Chemical 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 Johnson Chemical 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 Johnson Chemical Pharmaceutical, you can compare the effects of market volatilities on Li Kang and Johnson Chemical 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 Johnson Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Kang and Johnson Chemical.
Diversification Opportunities for Li Kang and Johnson Chemical
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between 6242 and Johnson is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Li Kang Biomedical and Johnson Chemical Pharmaceutica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Chemical Pha 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 Johnson Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Chemical Pha has no effect on the direction of Li Kang i.e., Li Kang and Johnson Chemical go up and down completely randomly.
Pair Corralation between Li Kang and Johnson Chemical
Assuming the 90 days trading horizon Li Kang Biomedical is expected to under-perform the Johnson Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Li Kang Biomedical is 3.06 times less risky than Johnson Chemical. The stock trades about -0.14 of its potential returns per unit of risk. The Johnson Chemical Pharmaceutical is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 7,190 in Johnson Chemical Pharmaceutical on November 7, 2024 and sell it today you would lose (100.00) from holding Johnson Chemical Pharmaceutical or give up 1.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Li Kang Biomedical vs. Johnson Chemical Pharmaceutica
Performance |
| Timeline |
| Li Kang Biomedical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Johnson Chemical Pha |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Li Kang and Johnson Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Li Kang and Johnson Chemical
The main advantage of trading using opposite Li Kang and Johnson Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Kang position performs unexpectedly, Johnson Chemical 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 Johnson Chemical will offset losses from the drop in Johnson Chemical's long position.The idea behind Li Kang Biomedical and Johnson Chemical Pharmaceutical 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.Check out your portfolio center.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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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