Correlation Between Lier Chemical and Heren Health

Can any of the company-specific risk be diversified away by investing in both Lier Chemical and Heren Health 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 Lier Chemical and Heren Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Lier Chemical and Heren Health

0.83

Correlation Coefficient

Lier Chemical  Heren Health

Very poor diversification

The 3 months correlation between Lier and Heren is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Lier Chemical Co and Heren Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heren Health and Lier Chemical 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 Lier Chemical Co are associated (or correlated) with Heren Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heren Health has no effect on the direction of Lier Chemical i.e., Lier Chemical and Heren Health go up and down completely randomly.

Pair Corralation between Lier Chemical and Heren Health

Assuming the 90 days trading horizon Lier Chemical is expected to generate 3.51 times less return on investment than Heren Health. But when comparing it to its historical volatility, Lier Chemical Co is 1.69 times less risky than Heren Health. It trades about 0.06 of its potential returns per unit of risk. Heren Health Co is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,137  in Heren Health Co on September 26, 2024 and sell it today you would earn a total of  371.00  from holding Heren Health Co or generate 32.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Lier Chemical Co  vs.  Heren Health Co

Lier Chemical

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lier Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Heren Health

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heren Health Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Heren Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lier Chemical and Heren Health

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

The idea behind Lier Chemical Co and Heren Health 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.