Correlation Between LX Semicon and Microfriend

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

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

Diversification Opportunities for LX Semicon and Microfriend

0.15

Correlation Coefficient

LX Semicon  Microfriend

Average diversification

The 3 months correlation between 108320 and Microfriend is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding LX Semicon Co and Microfriend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microfriend and LX Semicon 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 LX Semicon Co are associated (or correlated) with Microfriend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microfriend has no effect on the direction of LX Semicon i.e., LX Semicon and Microfriend go up and down completely randomly.

Pair Corralation between LX Semicon and Microfriend

Assuming the 90 days trading horizon LX Semicon Co is expected to under-perform the Microfriend. But the stock apears to be less risky and, when comparing its historical volatility, LX Semicon Co is 3.19 times less risky than Microfriend. The stock trades about -0.19 of its potential returns per unit of risk. The Microfriend is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  337,500  in Microfriend on August 31, 2024 and sell it today you would lose (30,000) from holding Microfriend or give up 8.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

LX Semicon Co  vs.  Microfriend

LX Semicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LX Semicon Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Microfriend

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Microfriend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Microfriend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LX Semicon and Microfriend

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

The idea behind LX Semicon Co and Microfriend 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.