Correlation Between StShine Optical and Lung Hwa

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

By analyzing existing cross correlation between StShine Optical Co and Lung Hwa Electronics, you can compare the effects of market volatilities on StShine Optical and Lung 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 StShine Optical with a short position of Lung Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of StShine Optical and Lung Hwa.

Diversification Opportunities for StShine Optical and Lung Hwa

0.76

Correlation Coefficient

StShine Optical  Lung Hwa

Poor diversification

The 3 months correlation between StShine and Lung is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding StShine Optical Co and Lung Hwa Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lung Hwa Electronics and StShine Optical 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 StShine Optical Co are associated (or correlated) with Lung Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lung Hwa Electronics has no effect on the direction of StShine Optical i.e., StShine Optical and Lung Hwa go up and down completely randomly.

Pair Corralation between StShine Optical and Lung Hwa

Assuming the 90 days trading horizon StShine Optical Co is expected to generate 0.72 times more return on investment than Lung Hwa. However, StShine Optical Co is 1.39 times less risky than Lung Hwa. It trades about 0.08 of its potential returns per unit of risk. Lung Hwa Electronics is currently generating about 0.05 per unit of risk. If you would invest  17,700  in StShine Optical Co on September 15, 2024 and sell it today you would earn a total of  2,050  from holding StShine Optical Co or generate 11.58% return on investment over 90 days.

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

StShine Optical Co  vs.  Lung Hwa Electronics

StShine Optical

Risk-Adjusted Performance

6 of 100

Modest

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

Lung Hwa Electronics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lung Hwa Electronics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lung Hwa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with StShine Optical and Lung Hwa

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

The idea behind StShine Optical Co and Lung Hwa Electronics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.