Correlation Between Lian Hwa and King Chou

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

Diversification Opportunities for Lian Hwa and King Chou

0.16

Correlation Coefficient

Lian Hwa  King Chou

Average diversification

The 3 months correlation between Lian and King is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Lian Hwa Foods and King Chou Marine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on King Chou Marine 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 King Chou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of King Chou Marine has no effect on the direction of Lian Hwa i.e., Lian Hwa and King Chou go up and down completely randomly.

Pair Corralation between Lian Hwa and King Chou

Assuming the 90 days trading horizon Lian Hwa is expected to generate 1.95 times less return on investment than King Chou. In addition to that, Lian Hwa is 3.92 times more volatile than King Chou Marine. It trades about 0.03 of its total potential returns per unit of risk. King Chou Marine is currently generating about 0.25 per unit of volatility. If you would invest  4,150  in King Chou Marine on December 21, 2024 and sell it today you would earn a total of  475.00  from holding King Chou Marine or generate 11.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.21%
Values	Daily Returns

Lian Hwa Foods  vs.  King Chou Marine

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 weak basic indicators, Lian Hwa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

King Chou Marine

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in King Chou Marine are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, King Chou may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Lian Hwa and King Chou

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

The idea behind Lian Hwa Foods and King Chou Marine 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.