Correlation Between Lam Soon and Hwa Fong

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

By analyzing existing cross correlation between Lam Soon Public and Hwa Fong Rubber, you can compare the effects of market volatilities on Lam Soon and Hwa Fong 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 Lam Soon with a short position of Hwa Fong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lam Soon and Hwa Fong.

Diversification Opportunities for Lam Soon and Hwa Fong

-0.83

Correlation Coefficient

Lam Soon  Hwa Fong

Pay attention - limited upside

The 3 months correlation between Lam and Hwa is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Lam Soon Public and Hwa Fong Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hwa Fong Rubber and Lam Soon 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 Lam Soon Public are associated (or correlated) with Hwa Fong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hwa Fong Rubber has no effect on the direction of Lam Soon i.e., Lam Soon and Hwa Fong go up and down completely randomly.

Pair Corralation between Lam Soon and Hwa Fong

Assuming the 90 days trading horizon Lam Soon Public is expected to generate 1.0 times more return on investment than Hwa Fong. However, Lam Soon Public is 1.0 times less risky than Hwa Fong. It trades about 0.04 of its potential returns per unit of risk. Hwa Fong Rubber is currently generating about 0.04 per unit of risk. If you would invest  457.00  in Lam Soon Public on September 14, 2024 and sell it today you would earn a total of  37.00  from holding Lam Soon Public or generate 8.1% return on investment over 90 days.

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

Lam Soon Public  vs.  Hwa Fong Rubber

Lam Soon Public

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Soon Public are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Lam Soon is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Hwa Fong Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hwa Fong Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Lam Soon and Hwa Fong

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

The idea behind Lam Soon Public and Hwa Fong Rubber 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.