Correlation Between Lihtai Construction and Chung Hsin
Can any of the company-specific risk be diversified away by investing in both Lihtai Construction and Chung Hsin 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 Lihtai Construction and Chung Hsin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lihtai Construction Enterprise and Chung Hsin Electric Machinery, you can compare the effects of market volatilities on Lihtai Construction and Chung Hsin 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 Lihtai Construction with a short position of Chung Hsin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lihtai Construction and Chung Hsin.
Diversification Opportunities for Lihtai Construction and Chung Hsin
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Lihtai and Chung is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lihtai Construction Enterprise and Chung Hsin Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hsin Electric and Lihtai Construction 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 Lihtai Construction Enterprise are associated (or correlated) with Chung Hsin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hsin Electric has no effect on the direction of Lihtai Construction i.e., Lihtai Construction and Chung Hsin go up and down completely randomly.
Pair Corralation between Lihtai Construction and Chung Hsin
Assuming the 90 days trading horizon Lihtai Construction Enterprise is expected to generate 0.24 times more return on investment than Chung Hsin. However, Lihtai Construction Enterprise is 4.13 times less risky than Chung Hsin. It trades about 0.11 of its potential returns per unit of risk. Chung Hsin Electric Machinery is currently generating about -0.07 per unit of risk. If you would invest 8,180 in Lihtai Construction Enterprise on November 5, 2024 and sell it today you would earn a total of 50.00 from holding Lihtai Construction Enterprise or generate 0.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lihtai Construction Enterprise vs. Chung Hsin Electric Machinery
Performance |
| Timeline |
| Lihtai Construction |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
| Chung Hsin Electric |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Lihtai Construction and Chung Hsin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lihtai Construction and Chung Hsin
The main advantage of trading using opposite Lihtai Construction and Chung Hsin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lihtai Construction position performs unexpectedly, Chung Hsin 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 Chung Hsin will offset losses from the drop in Chung Hsin's long position.The idea behind Lihtai Construction Enterprise and Chung Hsin Electric Machinery 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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