Correlation Between Lichen China and Quest Resource

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

By analyzing existing cross correlation between Lichen China Limited and Quest Resource Holding, you can compare the effects of market volatilities on Lichen China and Quest Resource 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 Lichen China with a short position of Quest Resource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lichen China and Quest Resource.

Diversification Opportunities for Lichen China and Quest Resource

0.2

Correlation Coefficient

Lichen China  Quest Resource

Modest diversification

The 3 months correlation between Lichen and Quest is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Lichen China Limited and Quest Resource Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quest Resource Holding and Lichen China 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 Lichen China Limited are associated (or correlated) with Quest Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quest Resource Holding has no effect on the direction of Lichen China i.e., Lichen China and Quest Resource go up and down completely randomly.

Pair Corralation between Lichen China and Quest Resource

Given the investment horizon of 90 days Lichen China Limited is expected to under-perform the Quest Resource. In addition to that, Lichen China is 4.8 times more volatile than Quest Resource Holding. It trades about -0.16 of its total potential returns per unit of risk. Quest Resource Holding is currently generating about -0.15 per unit of volatility. If you would invest  884.00  in Quest Resource Holding on September 13, 2024 and sell it today you would lose (186.00) from holding Quest Resource Holding or give up 21.04% of portfolio value over 90 days.

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

Lichen China Limited  vs.  Quest Resource Holding

Lichen China Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lichen China Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Quest Resource Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quest Resource Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Lichen China and Quest Resource

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

The idea behind Lichen China Limited and Quest Resource Holding 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.