Correlation Between Lichen China and Spire Global

Can any of the company-specific risk be diversified away by investing in both Lichen China and Spire Global 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 Spire Global 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 Spire Global, you can compare the effects of market volatilities on Lichen China and Spire Global 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 Spire Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lichen China and Spire Global.

Diversification Opportunities for Lichen China and Spire Global

0.22

Correlation Coefficient

Lichen China  Spire Global

Modest diversification

The 3 months correlation between Lichen and Spire is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Lichen China Limited and Spire Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spire Global 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 Spire Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spire Global has no effect on the direction of Lichen China i.e., Lichen China and Spire Global go up and down completely randomly.

Pair Corralation between Lichen China and Spire Global

Given the investment horizon of 90 days Lichen China is expected to generate 7.01 times less return on investment than Spire Global. In addition to that, Lichen China is 1.36 times more volatile than Spire Global. It trades about 0.03 of its total potential returns per unit of risk. Spire Global is currently generating about 0.26 per unit of volatility. If you would invest  818.00  in Spire Global on September 4, 2024 and sell it today you would earn a total of  739.00  from holding Spire Global or generate 90.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Lichen China Limited  vs.  Spire Global

Lichen China Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lichen China Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Lichen China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Spire Global

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spire Global are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating forward indicators, Spire Global reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lichen China and Spire Global

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

The idea behind Lichen China Limited and Spire Global 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.