Correlation Between Lung Hwa and StShine Optical

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

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

Diversification Opportunities for Lung Hwa and StShine Optical

0.76

Correlation Coefficient

Lung Hwa  StShine Optical

Poor diversification

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

Pair Corralation between Lung Hwa and StShine Optical

Assuming the 90 days trading horizon Lung Hwa is expected to generate 1.2 times less return on investment than StShine Optical. In addition to that, Lung Hwa is 1.39 times more volatile than StShine Optical Co. It trades about 0.05 of its total potential returns per unit of risk. StShine Optical Co is currently generating about 0.08 per unit of volatility. 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

Lung Hwa Electronics  vs.  StShine Optical Co

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.

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.

Pair Trading with Lung Hwa and StShine Optical

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

The idea behind Lung Hwa Electronics and StShine Optical 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.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.