Correlation Between Lian Hwa and Cipherlab

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

Diversification Opportunities for Lian Hwa and Cipherlab

-0.79

Correlation Coefficient

Lian Hwa  Cipherlab

Pay attention - limited upside

The 3 months correlation between Lian and Cipherlab is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Lian Hwa Foods and Cipherlab Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cipherlab 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 Cipherlab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cipherlab has no effect on the direction of Lian Hwa i.e., Lian Hwa and Cipherlab go up and down completely randomly.

Pair Corralation between Lian Hwa and Cipherlab

Assuming the 90 days trading horizon Lian Hwa Foods is expected to generate 0.45 times more return on investment than Cipherlab. However, Lian Hwa Foods is 2.23 times less risky than Cipherlab. It trades about 0.09 of its potential returns per unit of risk. Cipherlab Co is currently generating about 0.04 per unit of risk. If you would invest  7,400  in Lian Hwa Foods on September 25, 2024 and sell it today you would earn a total of  5,800  from holding Lian Hwa Foods or generate 78.38% return on investment over 90 days.

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

Lian Hwa Foods  vs.  Cipherlab Co

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.

Cipherlab

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cipherlab Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Lian Hwa and Cipherlab

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

The idea behind Lian Hwa Foods and Cipherlab Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.