Correlation Between Lian Hwa and Yungshin Construction

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

Diversification Opportunities for Lian Hwa and Yungshin Construction

0.01

Correlation Coefficient

Lian Hwa  Yungshin Construction

Significant diversification

The 3 months correlation between Lian and Yungshin is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Lian Hwa Foods and Yungshin Construction Developm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yungshin Construction 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 Yungshin Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yungshin Construction has no effect on the direction of Lian Hwa i.e., Lian Hwa and Yungshin Construction go up and down completely randomly.

Pair Corralation between Lian Hwa and Yungshin Construction

Assuming the 90 days trading horizon Lian Hwa is expected to generate 1.65 times less return on investment than Yungshin Construction. In addition to that, Lian Hwa is 1.24 times more volatile than Yungshin Construction Development. It trades about 0.02 of its total potential returns per unit of risk. Yungshin Construction Development is currently generating about 0.04 per unit of volatility. If you would invest  14,000  in Yungshin Construction Development on December 22, 2024 and sell it today you would earn a total of  550.00  from holding Yungshin Construction Development or generate 3.93% return on investment over 90 days.

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

Lian Hwa Foods  vs.  Yungshin Construction Developm

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 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lian Hwa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Yungshin Construction

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yungshin Construction Development are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Yungshin Construction 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 Yungshin Construction

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

The idea behind Lian Hwa Foods and Yungshin Construction Development 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.