Correlation Between Lian Hwa and Charoen Pokphand

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

Diversification Opportunities for Lian Hwa and Charoen Pokphand

0.17

Correlation Coefficient

Lian Hwa  Charoen Pokphand

Average diversification

The 3 months correlation between Lian and Charoen is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Lian Hwa Foods and Charoen Pokphand Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charoen Pokphand Ent 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 Charoen Pokphand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charoen Pokphand Ent has no effect on the direction of Lian Hwa i.e., Lian Hwa and Charoen Pokphand go up and down completely randomly.

Pair Corralation between Lian Hwa and Charoen Pokphand

Assuming the 90 days trading horizon Lian Hwa Foods is expected to generate 0.94 times more return on investment than Charoen Pokphand. However, Lian Hwa Foods is 1.06 times less risky than Charoen Pokphand. It trades about 0.2 of its potential returns per unit of risk. Charoen Pokphand Enterprise is currently generating about 0.06 per unit of risk. If you would invest  10,400  in Lian Hwa Foods on September 4, 2024 and sell it today you would earn a total of  1,550  from holding Lian Hwa Foods or generate 14.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Lian Hwa Foods  vs.  Charoen Pokphand Enterprise

Lian Hwa Foods

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lian Hwa showed solid returns over the last few months and may actually be approaching a breakup point.

Charoen Pokphand Ent

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Charoen Pokphand Enterprise are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Charoen Pokphand is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lian Hwa and Charoen Pokphand

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

The idea behind Lian Hwa Foods and Charoen Pokphand 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.