Correlation Between Lian Hwa and Shin Tai
Can any of the company-specific risk be diversified away by investing in both Lian Hwa and Shin Tai 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 Lian Hwa and Shin Tai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lian Hwa Foods and Shin Tai Industry, you can compare the effects of market volatilities on Lian Hwa and Shin Tai 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 Lian Hwa with a short position of Shin Tai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lian Hwa and Shin Tai.
Diversification Opportunities for Lian Hwa and Shin Tai
Pay attention - limited upside
The 3 months correlation between Lian and Shin is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Lian Hwa Foods and Shin Tai Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Tai Industry and Lian 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 Lian Hwa Foods are associated (or correlated) with Shin Tai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Tai Industry has no effect on the direction of Lian Hwa i.e., Lian Hwa and Shin Tai go up and down completely randomly.
Pair Corralation between Lian Hwa and Shin Tai
Assuming the 90 days trading horizon Lian Hwa Foods is expected to generate 0.7 times more return on investment than Shin Tai. However, Lian Hwa Foods is 1.43 times less risky than Shin Tai. It trades about 0.09 of its potential returns per unit of risk. Shin Tai Industry is currently generating about 0.03 per unit of risk. If you would invest 8,480 in Lian Hwa Foods on November 2, 2024 and sell it today you would earn a total of 6,220 from holding Lian Hwa Foods or generate 73.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lian Hwa Foods vs. Shin Tai Industry
Performance |
| Timeline |
| Lian Hwa Foods |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
| Shin Tai Industry |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Lian Hwa and Shin Tai Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lian Hwa and Shin Tai
The main advantage of trading using opposite Lian Hwa and Shin Tai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lian Hwa position performs unexpectedly, Shin Tai 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 Shin Tai will offset losses from the drop in Shin Tai's long position.The idea behind Lian Hwa Foods and Shin Tai Industry 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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