Correlation Between Li Kang and Lian Hwa
Can any of the company-specific risk be diversified away by investing in both Li Kang 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 Li Kang and Lian Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Li Kang Biomedical and Lian Hwa Foods, you can compare the effects of market volatilities on Li Kang 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 Li Kang with a short position of Lian Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Kang and Lian Hwa.
Diversification Opportunities for Li Kang and Lian Hwa
Good diversification
The 3 months correlation between 6242 and Lian is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Li Kang Biomedical 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 Li Kang 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 Li Kang Biomedical 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 Li Kang i.e., Li Kang and Lian Hwa go up and down completely randomly.
Pair Corralation between Li Kang and Lian Hwa
Assuming the 90 days trading horizon Li Kang is expected to generate 10.04 times less return on investment than Lian Hwa. But when comparing it to its historical volatility, Li Kang Biomedical is 1.49 times less risky than Lian Hwa. It trades about 0.03 of its potential returns per unit of risk. Lian Hwa Foods is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 11,150 in Lian Hwa Foods on August 28, 2024 and sell it today you would earn a total of 600.00 from holding Lian Hwa Foods or generate 5.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Li Kang Biomedical vs. Lian Hwa Foods
Performance |
| Timeline |
| Li Kang Biomedical |
| Lian Hwa Foods |
Li Kang and Lian Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Li Kang and Lian Hwa
The main advantage of trading using opposite Li Kang and Lian Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Kang 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.| Li Kang vs. Taiwan Cement Corp | Li Kang vs. Ruentex Development Co | Li Kang vs. Symtek Automation Asia | Li Kang vs. CTCI Corp |
| Lian Hwa vs. Lien Hwa Industrial | Lian Hwa vs. Charoen Pokphand Enterprise | Lian Hwa vs. Great Wall Enterprise | Lian Hwa vs. Uni President Enterprises Corp |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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