Correlation Between Lien Hwa and Great Wall

Can any of the company-specific risk be diversified away by investing in both Lien Hwa and Great Wall 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 Great Wall 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 Great Wall Enterprise, you can compare the effects of market volatilities on Lien Hwa and Great Wall 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 Great Wall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lien Hwa and Great Wall.

Diversification Opportunities for Lien Hwa and Great Wall

0.24

Correlation Coefficient

Lien Hwa  Great Wall

Modest diversification

The 3 months correlation between Lien and Great is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Lien Hwa Industrial and Great Wall Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Wall Enterprise 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 Great Wall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Wall Enterprise has no effect on the direction of Lien Hwa i.e., Lien Hwa and Great Wall go up and down completely randomly.

Pair Corralation between Lien Hwa and Great Wall

Assuming the 90 days trading horizon Lien Hwa Industrial is expected to under-perform the Great Wall. In addition to that, Lien Hwa is 1.48 times more volatile than Great Wall Enterprise. It trades about -0.01 of its total potential returns per unit of risk. Great Wall Enterprise is currently generating about 0.26 per unit of volatility. If you would invest  5,190  in Great Wall Enterprise on December 29, 2024 and sell it today you would earn a total of  630.00  from holding Great Wall Enterprise or generate 12.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Lien Hwa Industrial  vs.  Great Wall Enterprise

Lien Hwa Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lien Hwa Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lien Hwa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Great Wall Enterprise

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Great Wall Enterprise are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Great Wall showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lien Hwa and Great Wall

The main advantage of trading using opposite Lien Hwa and Great Wall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lien Hwa position performs unexpectedly, Great Wall 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 Great Wall will offset losses from the drop in Great Wall's long position.

The idea behind Lien Hwa Industrial and Great Wall Enterprise 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..