Correlation Between SMX Public and Lichen China

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

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

Diversification Opportunities for SMX Public and Lichen China

-0.34

Correlation Coefficient

SMX Public  Lichen China

Very good diversification

The 3 months correlation between SMX and Lichen is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding SMX Public Limited and Lichen China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lichen China Limited and SMX Public 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 SMX Public Limited are associated (or correlated) with Lichen China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lichen China Limited has no effect on the direction of SMX Public i.e., SMX Public and Lichen China go up and down completely randomly.

Pair Corralation between SMX Public and Lichen China

Considering the 90-day investment horizon SMX Public Limited is expected to under-perform the Lichen China. In addition to that, SMX Public is 3.92 times more volatile than Lichen China Limited. It trades about -0.08 of its total potential returns per unit of risk. Lichen China Limited is currently generating about 0.02 per unit of volatility. If you would invest  193.00  in Lichen China Limited on September 3, 2024 and sell it today you would lose (6.00) from holding Lichen China Limited or give up 3.11% of portfolio value over 90 days.

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

SMX Public Limited  vs.  Lichen China Limited

SMX Public Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMX Public Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Lichen China Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lichen China Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Lichen China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SMX Public and Lichen China

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

The idea behind SMX Public Limited and Lichen China Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.