Correlation Between Lung Hwa and LandMark Optoelectronics

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

By analyzing existing cross correlation between Lung Hwa Electronics and LandMark Optoelectronics, you can compare the effects of market volatilities on Lung Hwa and LandMark Optoelectronics 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 Lung Hwa with a short position of LandMark Optoelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lung Hwa and LandMark Optoelectronics.

Diversification Opportunities for Lung Hwa and LandMark Optoelectronics

0.93

Correlation Coefficient

Lung Hwa  LandMark Optoelectronics

Almost no diversification

The 3 months correlation between Lung and LandMark is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Lung Hwa Electronics and LandMark Optoelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LandMark Optoelectronics and Lung 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 Lung Hwa Electronics are associated (or correlated) with LandMark Optoelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LandMark Optoelectronics has no effect on the direction of Lung Hwa i.e., Lung Hwa and LandMark Optoelectronics go up and down completely randomly.

Pair Corralation between Lung Hwa and LandMark Optoelectronics

Assuming the 90 days trading horizon Lung Hwa is expected to generate 1.7 times less return on investment than LandMark Optoelectronics. But when comparing it to its historical volatility, Lung Hwa Electronics is 1.3 times less risky than LandMark Optoelectronics. It trades about 0.17 of its potential returns per unit of risk. LandMark Optoelectronics is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  19,150  in LandMark Optoelectronics on September 4, 2024 and sell it today you would earn a total of  15,150  from holding LandMark Optoelectronics or generate 79.11% return on investment over 90 days.

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

Lung Hwa Electronics  vs.  LandMark Optoelectronics

Lung Hwa Electronics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lung Hwa Electronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lung Hwa showed solid returns over the last few months and may actually be approaching a breakup point.

LandMark Optoelectronics

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LandMark Optoelectronics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, LandMark Optoelectronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lung Hwa and LandMark Optoelectronics

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

The idea behind Lung Hwa Electronics and LandMark Optoelectronics 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.