Correlation Between Asustek Computer and Lian Hwa

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

By analyzing existing cross correlation between Asustek Computer and Lian Hwa Foods, you can compare the effects of market volatilities on Asustek Computer and Lian 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 Asustek Computer with a short position of Lian Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asustek Computer and Lian Hwa.

Diversification Opportunities for Asustek Computer and Lian Hwa

0.62

Correlation Coefficient

Asustek Computer  Lian Hwa

Poor diversification

The 3 months correlation between Asustek and Lian is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Asustek Computer and Lian Hwa Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lian Hwa Foods and Asustek Computer 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 Asustek Computer are associated (or correlated) with Lian Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lian Hwa Foods has no effect on the direction of Asustek Computer i.e., Asustek Computer and Lian Hwa go up and down completely randomly.

Pair Corralation between Asustek Computer and Lian Hwa

Assuming the 90 days trading horizon Asustek Computer is expected to generate 1.32 times less return on investment than Lian Hwa. But when comparing it to its historical volatility, Asustek Computer is 1.5 times less risky than Lian Hwa. It trades about 0.21 of its potential returns per unit of risk. Lian Hwa Foods is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  12,850  in Lian Hwa Foods on October 10, 2024 and sell it today you would earn a total of  1,100  from holding Lian Hwa Foods or generate 8.56% return on investment over 90 days.

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

Asustek Computer  vs.  Lian Hwa Foods

Asustek Computer

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asustek Computer are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Asustek Computer may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lian Hwa Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lian Hwa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asustek Computer and Lian Hwa

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

The idea behind Asustek Computer and Lian Hwa Foods 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.