Correlation Between Newretail and Lian Hwa

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

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

Diversification Opportunities for Newretail and Lian Hwa

0.68

Correlation Coefficient

Newretail  Lian Hwa

Poor diversification

The 3 months correlation between Newretail and Lian is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Newretail Co and Lian Hwa Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lian Hwa Foods and Newretail 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 Newretail Co are associated (or correlated) with Lian Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lian Hwa Foods has no effect on the direction of Newretail i.e., Newretail and Lian Hwa go up and down completely randomly.

Pair Corralation between Newretail and Lian Hwa

Assuming the 90 days trading horizon Newretail Co is expected to generate 3.28 times more return on investment than Lian Hwa. However, Newretail is 3.28 times more volatile than Lian Hwa Foods. It trades about 0.09 of its potential returns per unit of risk. Lian Hwa Foods is currently generating about 0.12 per unit of risk. If you would invest  1,150  in Newretail Co on September 13, 2024 and sell it today you would earn a total of  1,300  from holding Newretail Co or generate 113.04% return on investment over 90 days.

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

Newretail Co  vs.  Lian Hwa Foods

Newretail

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Newretail Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Newretail showed solid returns over the last few months and may actually be approaching a breakup point.

Lian Hwa Foods

Risk-Adjusted Performance

26 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 26 (%) 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.

Pair Trading with Newretail and Lian Hwa

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

The idea behind Newretail Co and Lian Hwa Foods 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.