Correlation Between Lian Hwa and Chia Yi

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

Diversification Opportunities for Lian Hwa and Chia Yi

0.36

Correlation Coefficient

Lian Hwa  Chia Yi

Weak diversification

The 3 months correlation between Lian and Chia is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lian Hwa Foods and Chia Yi Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chia Yi Steel 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 Chia Yi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chia Yi Steel has no effect on the direction of Lian Hwa i.e., Lian Hwa and Chia Yi go up and down completely randomly.

Pair Corralation between Lian Hwa and Chia Yi

Assuming the 90 days trading horizon Lian Hwa Foods is expected to generate 0.76 times more return on investment than Chia Yi. However, Lian Hwa Foods is 1.31 times less risky than Chia Yi. It trades about 0.18 of its potential returns per unit of risk. Chia Yi Steel is currently generating about 0.07 per unit of risk. If you would invest  12,850  in Lian Hwa Foods on October 9, 2024 and sell it today you would earn a total of  1,050  from holding Lian Hwa Foods or generate 8.17% return on investment over 90 days.

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

Lian Hwa Foods  vs.  Chia Yi Steel

Lian Hwa Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 17 (%) 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.

Chia Yi Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chia Yi Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chia Yi may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lian Hwa and Chia Yi

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

The idea behind Lian Hwa Foods and Chia Yi Steel 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.