Correlation Between Lam Soon and MFC Asset

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

Diversification Opportunities for Lam Soon and MFC Asset

0.09

Correlation Coefficient

Lam Soon  MFC Asset

Significant diversification

The 3 months correlation between Lam and MFC is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Lam Soon Public and MFC Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFC Asset Management 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 MFC Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFC Asset Management has no effect on the direction of Lam Soon i.e., Lam Soon and MFC Asset go up and down completely randomly.

Pair Corralation between Lam Soon and MFC Asset

Assuming the 90 days trading horizon Lam Soon is expected to generate 26.89 times less return on investment than MFC Asset. But when comparing it to its historical volatility, Lam Soon Public is 4.68 times less risky than MFC Asset. It trades about 0.02 of its potential returns per unit of risk. MFC Asset Management is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,210  in MFC Asset Management on September 15, 2024 and sell it today you would earn a total of  565.00  from holding MFC Asset Management or generate 25.57% return on investment over 90 days.

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

Lam Soon Public  vs.  MFC Asset Management

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.

MFC Asset Management

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MFC Asset Management are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, MFC Asset disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lam Soon and MFC Asset

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

The idea behind Lam Soon Public and MFC Asset Management 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.