Correlation Between Hey Song and Lien Hwa

Can any of the company-specific risk be diversified away by investing in both Hey Song and Lien Hwa 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 Hey Song and Lien Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hey Song Corp and Lien Hwa Industrial, you can compare the effects of market volatilities on Hey Song and Lien Hwa 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 Hey Song with a short position of Lien Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hey Song and Lien Hwa.

Diversification Opportunities for Hey Song and Lien Hwa

0.67

Correlation Coefficient

Hey Song  Lien Hwa

Poor diversification

The 3 months correlation between Hey and Lien is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Hey Song Corp and Lien Hwa Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lien Hwa Industrial and Hey Song 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 Hey Song Corp are associated (or correlated) with Lien Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lien Hwa Industrial has no effect on the direction of Hey Song i.e., Hey Song and Lien Hwa go up and down completely randomly.

Pair Corralation between Hey Song and Lien Hwa

Assuming the 90 days trading horizon Hey Song is expected to generate 9.86 times less return on investment than Lien Hwa. But when comparing it to its historical volatility, Hey Song Corp is 3.27 times less risky than Lien Hwa. It trades about 0.01 of its potential returns per unit of risk. Lien Hwa Industrial is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,100  in Lien Hwa Industrial on December 20, 2024 and sell it today you would earn a total of  60.00  from holding Lien Hwa Industrial or generate 1.18% return on investment over 90 days.

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

Hey Song Corp  vs.  Lien Hwa Industrial

Hey Song Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hey Song Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hey Song is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lien Hwa Industrial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lien Hwa Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lien Hwa 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 Hey Song and Lien Hwa

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

The idea behind Hey Song Corp and Lien Hwa Industrial 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..