Correlation Between Lian Hwa and All Ring

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

By analyzing existing cross correlation between Lian Hwa Foods and All Ring Tech, you can compare the effects of market volatilities on Lian Hwa and All Ring 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 Lian Hwa with a short position of All Ring. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lian Hwa and All Ring.

Diversification Opportunities for Lian Hwa and All Ring

0.26

Correlation Coefficient

Lian Hwa  All Ring

Modest diversification

The 3 months correlation between Lian and All is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Lian Hwa Foods and All Ring Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on All Ring Tech and Lian Hwa 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 Lian Hwa Foods are associated (or correlated) with All Ring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of All Ring Tech has no effect on the direction of Lian Hwa i.e., Lian Hwa and All Ring go up and down completely randomly.

Pair Corralation between Lian Hwa and All Ring

Assuming the 90 days trading horizon Lian Hwa is expected to generate 1.5 times less return on investment than All Ring. But when comparing it to its historical volatility, Lian Hwa Foods is 3.1 times less risky than All Ring. It trades about 0.2 of its potential returns per unit of risk. All Ring Tech is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  35,900  in All Ring Tech on September 4, 2024 and sell it today you would earn a total of  7,100  from holding All Ring Tech or generate 19.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Lian Hwa Foods  vs.  All Ring Tech

Lian Hwa Foods

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lian Hwa showed solid returns over the last few months and may actually be approaching a breakup point.

All Ring Tech

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in All Ring Tech are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, All Ring showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lian Hwa and All Ring

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

The idea behind Lian Hwa Foods and All Ring Tech 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.