Correlation Between Lien Chang and Penpower Technology

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

By analyzing existing cross correlation between Lien Chang Electronic and Penpower Technology, you can compare the effects of market volatilities on Lien Chang and Penpower Technology 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 Lien Chang with a short position of Penpower Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lien Chang and Penpower Technology.

Diversification Opportunities for Lien Chang and Penpower Technology

0.51

Correlation Coefficient

Lien Chang  Penpower Technology

Very weak diversification

The 3 months correlation between Lien and Penpower is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lien Chang Electronic and Penpower Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penpower Technology and Lien Chang 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 Lien Chang Electronic are associated (or correlated) with Penpower Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penpower Technology has no effect on the direction of Lien Chang i.e., Lien Chang and Penpower Technology go up and down completely randomly.

Pair Corralation between Lien Chang and Penpower Technology

Assuming the 90 days trading horizon Lien Chang Electronic is expected to generate 1.97 times more return on investment than Penpower Technology. However, Lien Chang is 1.97 times more volatile than Penpower Technology. It trades about 0.05 of its potential returns per unit of risk. Penpower Technology is currently generating about 0.03 per unit of risk. If you would invest  1,325  in Lien Chang Electronic on September 27, 2024 and sell it today you would earn a total of  90.00  from holding Lien Chang Electronic or generate 6.79% return on investment over 90 days.

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

Lien Chang Electronic  vs.  Penpower Technology

Lien Chang Electronic

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lien Chang Electronic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lien Chang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Penpower Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Penpower Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Penpower Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lien Chang and Penpower Technology

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

The idea behind Lien Chang Electronic and Penpower Technology 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.