Correlation Between Lian Hwa and Grape King

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

Diversification Opportunities for Lian Hwa and Grape King

-0.17

Correlation Coefficient

Lian Hwa  Grape King

Good diversification

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

Pair Corralation between Lian Hwa and Grape King

Assuming the 90 days trading horizon Lian Hwa Foods is expected to generate 3.83 times more return on investment than Grape King. However, Lian Hwa is 3.83 times more volatile than Grape King Bio. It trades about 0.03 of its potential returns per unit of risk. Grape King Bio is currently generating about -0.08 per unit of risk. If you would invest  13,100  in Lian Hwa Foods on December 21, 2024 and sell it today you would earn a total of  400.00  from holding Lian Hwa Foods or generate 3.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Lian Hwa Foods  vs.  Grape King Bio

Lian Hwa Foods

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lian Hwa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Grape King Bio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Grape King Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Grape King 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 Grape King

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

The idea behind Lian Hwa Foods and Grape King Bio 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.