Correlation Between Lan Fa and Feng Tay

Can any of the company-specific risk be diversified away by investing in both Lan Fa and Feng Tay 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 Lan Fa and Feng Tay into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lan Fa Textile and Feng Tay Enterprises, you can compare the effects of market volatilities on Lan Fa and Feng Tay 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 Lan Fa with a short position of Feng Tay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lan Fa and Feng Tay.

Diversification Opportunities for Lan Fa and Feng Tay

0.31

Correlation Coefficient

Lan Fa  Feng Tay

Weak diversification

The 3 months correlation between Lan and Feng is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Lan Fa Textile and Feng Tay Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feng Tay Enterprises and Lan Fa 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 Lan Fa Textile are associated (or correlated) with Feng Tay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feng Tay Enterprises has no effect on the direction of Lan Fa i.e., Lan Fa and Feng Tay go up and down completely randomly.

Pair Corralation between Lan Fa and Feng Tay

Assuming the 90 days trading horizon Lan Fa Textile is expected to generate 1.07 times more return on investment than Feng Tay. However, Lan Fa is 1.07 times more volatile than Feng Tay Enterprises. It trades about 0.05 of its potential returns per unit of risk. Feng Tay Enterprises is currently generating about -0.03 per unit of risk. If you would invest  925.00  in Lan Fa Textile on December 5, 2024 and sell it today you would earn a total of  315.00  from holding Lan Fa Textile or generate 34.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.74%
Values	Daily Returns

Lan Fa Textile  vs.  Feng Tay Enterprises

Lan Fa Textile

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lan Fa Textile are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lan Fa showed solid returns over the last few months and may actually be approaching a breakup point.

Feng Tay Enterprises

Risk-Adjusted Performance

Very Weak

Over the last 90 days Feng Tay Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Feng Tay 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 Lan Fa and Feng Tay

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

The idea behind Lan Fa Textile and Feng Tay Enterprises 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.