Correlation Between Lien Hwa and Jia Jie
Can any of the company-specific risk be diversified away by investing in both Lien Hwa and Jia Jie 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 Lien Hwa and Jia Jie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lien Hwa Industrial and Jia Jie Biomedical, you can compare the effects of market volatilities on Lien Hwa and Jia Jie 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 Lien Hwa with a short position of Jia Jie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lien Hwa and Jia Jie.
Diversification Opportunities for Lien Hwa and Jia Jie
Poor diversification
The 3 months correlation between Lien and Jia is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Lien Hwa Industrial and Jia Jie Biomedical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jia Jie Biomedical and Lien Hwa 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 Lien Hwa Industrial are associated (or correlated) with Jia Jie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jia Jie Biomedical has no effect on the direction of Lien Hwa i.e., Lien Hwa and Jia Jie go up and down completely randomly.
Pair Corralation between Lien Hwa and Jia Jie
Assuming the 90 days trading horizon Lien Hwa is expected to generate 3.33 times less return on investment than Jia Jie. But when comparing it to its historical volatility, Lien Hwa Industrial is 2.23 times less risky than Jia Jie. It trades about 0.04 of its potential returns per unit of risk. Jia Jie Biomedical is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,408 in Jia Jie Biomedical on August 30, 2024 and sell it today you would earn a total of 1,007 from holding Jia Jie Biomedical or generate 71.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.79% |
| Values | Daily Returns |
Lien Hwa Industrial vs. Jia Jie Biomedical
Performance |
| Timeline |
| Lien Hwa Industrial |
| Jia Jie Biomedical |
Lien Hwa and Jia Jie Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lien Hwa and Jia Jie
The main advantage of trading using opposite Lien Hwa and Jia Jie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lien Hwa position performs unexpectedly, Jia Jie 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 Jia Jie will offset losses from the drop in Jia Jie's long position.The idea behind Lien Hwa Industrial and Jia Jie Biomedical 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.| Jia Jie vs. Uni President Enterprises Corp | Jia Jie vs. Tingyi Holding Corp | Jia Jie vs. Lien Hwa Industrial | Jia Jie vs. Great Wall Enterprise |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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