Correlation Between Lian Hwa and Information Technology

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

Diversification Opportunities for Lian Hwa and Information Technology

0.63

Correlation Coefficient

Lian Hwa  Information Technology

Poor diversification

The 3 months correlation between Lian and Information is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lian Hwa Foods and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology 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 Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of Lian Hwa i.e., Lian Hwa and Information Technology go up and down completely randomly.

Pair Corralation between Lian Hwa and Information Technology

Assuming the 90 days trading horizon Lian Hwa is expected to generate 18.49 times less return on investment than Information Technology. In addition to that, Lian Hwa is 1.16 times more volatile than Information Technology Total. It trades about 0.0 of its total potential returns per unit of risk. Information Technology Total is currently generating about 0.08 per unit of volatility. If you would invest  4,362  in Information Technology Total on December 24, 2024 and sell it today you would earn a total of  473.00  from holding Information Technology Total or generate 10.84% return on investment over 90 days.

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

Lian Hwa Foods  vs.  Information Technology Total

Lian Hwa Foods

Risk-Adjusted Performance

Weak

Over the last 90 days Lian Hwa Foods has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Information Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lian Hwa and Information Technology

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

The idea behind Lian Hwa Foods and Information Technology Total 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.