Correlation Between Lee Chi and Eurocharm Holdings

Can any of the company-specific risk be diversified away by investing in both Lee Chi and Eurocharm Holdings 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 Lee Chi and Eurocharm Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lee Chi Enterprises and Eurocharm Holdings Co, you can compare the effects of market volatilities on Lee Chi and Eurocharm Holdings 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 Lee Chi with a short position of Eurocharm Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lee Chi and Eurocharm Holdings.

Diversification Opportunities for Lee Chi and Eurocharm Holdings

0.68

Correlation Coefficient

Lee Chi  Eurocharm Holdings

Poor diversification

The 3 months correlation between Lee and Eurocharm is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lee Chi Enterprises and Eurocharm Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eurocharm Holdings and Lee Chi 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 Lee Chi Enterprises are associated (or correlated) with Eurocharm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eurocharm Holdings has no effect on the direction of Lee Chi i.e., Lee Chi and Eurocharm Holdings go up and down completely randomly.

Pair Corralation between Lee Chi and Eurocharm Holdings

Assuming the 90 days trading horizon Lee Chi Enterprises is expected to under-perform the Eurocharm Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Lee Chi Enterprises is 1.07 times less risky than Eurocharm Holdings. The stock trades about -0.05 of its potential returns per unit of risk. The Eurocharm Holdings Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  16,483  in Eurocharm Holdings Co on October 11, 2024 and sell it today you would earn a total of  4,167  from holding Eurocharm Holdings Co or generate 25.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Lee Chi Enterprises  vs.  Eurocharm Holdings Co

Lee Chi Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lee Chi Enterprises 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.

Eurocharm Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eurocharm Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Eurocharm Holdings 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 Lee Chi and Eurocharm Holdings

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

The idea behind Lee Chi Enterprises and Eurocharm Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.