Correlation Between Uni President and Lien Hwa
Can any of the company-specific risk be diversified away by investing in both Uni President and Lien Hwa 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 Uni President and Lien Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Uni President Enterprises Corp and Lien Hwa Industrial, you can compare the effects of market volatilities on Uni President and Lien Hwa 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 Uni President with a short position of Lien Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Uni President and Lien Hwa.
Diversification Opportunities for Uni President and Lien Hwa
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Uni and Lien is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Uni President Enterprises Corp and Lien Hwa Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lien Hwa Industrial and Uni President 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 Uni President Enterprises Corp are associated (or correlated) with Lien Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lien Hwa Industrial has no effect on the direction of Uni President i.e., Uni President and Lien Hwa go up and down completely randomly.
Pair Corralation between Uni President and Lien Hwa
Assuming the 90 days trading horizon Uni President Enterprises Corp is expected to generate 0.72 times more return on investment than Lien Hwa. However, Uni President Enterprises Corp is 1.39 times less risky than Lien Hwa. It trades about -0.11 of its potential returns per unit of risk. Lien Hwa Industrial is currently generating about -0.11 per unit of risk. If you would invest 7,990 in Uni President Enterprises Corp on November 3, 2024 and sell it today you would lose (150.00) from holding Uni President Enterprises Corp or give up 1.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Uni President Enterprises Corp vs. Lien Hwa Industrial
Performance |
| Timeline |
| Uni President Enterp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Lien Hwa Industrial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Uni President and Lien Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Uni President and Lien Hwa
The main advantage of trading using opposite Uni President and Lien Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Uni President position performs unexpectedly, Lien Hwa 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 Lien Hwa will offset losses from the drop in Lien Hwa's long position.The idea behind Uni President Enterprises Corp and Lien Hwa Industrial 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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