Correlation Between Shin Tai and Lian Hwa
Can any of the company-specific risk be diversified away by investing in both Shin Tai and Lian 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 Shin Tai and Lian Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shin Tai Industry and Lian Hwa Foods, you can compare the effects of market volatilities on Shin Tai and Lian 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 Shin Tai with a short position of Lian Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin Tai and Lian Hwa.
Diversification Opportunities for Shin Tai and Lian Hwa
Poor diversification
The 3 months correlation between Shin and Lian is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Shin Tai Industry and Lian Hwa Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lian Hwa Foods and Shin Tai 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 Shin Tai Industry are associated (or correlated) with Lian Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lian Hwa Foods has no effect on the direction of Shin Tai i.e., Shin Tai and Lian Hwa go up and down completely randomly.
Pair Corralation between Shin Tai and Lian Hwa
Assuming the 90 days trading horizon Shin Tai Industry is expected to generate 1.18 times more return on investment than Lian Hwa. However, Shin Tai is 1.18 times more volatile than Lian Hwa Foods. It trades about 0.18 of its potential returns per unit of risk. Lian Hwa Foods is currently generating about 0.09 per unit of risk. If you would invest 8,990 in Shin Tai Industry on August 29, 2024 and sell it today you would earn a total of 5,610 from holding Shin Tai Industry or generate 62.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shin Tai Industry vs. Lian Hwa Foods
Performance |
| Timeline |
| Shin Tai Industry |
| Lian Hwa Foods |
Shin Tai and Lian Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shin Tai and Lian Hwa
The main advantage of trading using opposite Shin Tai and Lian Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shin Tai position performs unexpectedly, Lian 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 Lian Hwa will offset losses from the drop in Lian Hwa's long position.| Shin Tai vs. Great Wall Enterprise | Shin Tai vs. Uni President Enterprises Corp | Shin Tai vs. Lien Hwa Industrial |
| Lian Hwa vs. Great Wall Enterprise | Lian Hwa vs. Uni President Enterprises Corp | Lian Hwa vs. Lien Hwa Industrial |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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