Correlation Between Lung Hwa and E Lead

Can any of the company-specific risk be diversified away by investing in both Lung Hwa and E Lead 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 E Lead 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 E Lead Electronic Co, you can compare the effects of market volatilities on Lung Hwa and E Lead 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 E Lead. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lung Hwa and E Lead.

Diversification Opportunities for Lung Hwa and E Lead

0.63

Correlation Coefficient

Lung Hwa  E Lead

Poor diversification

The 3 months correlation between Lung and 2497 is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lung Hwa Electronics and E Lead Electronic Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Lead Electronic 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 E Lead. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Lead Electronic has no effect on the direction of Lung Hwa i.e., Lung Hwa and E Lead go up and down completely randomly.

Pair Corralation between Lung Hwa and E Lead

Assuming the 90 days trading horizon Lung Hwa Electronics is expected to under-perform the E Lead. In addition to that, Lung Hwa is 2.61 times more volatile than E Lead Electronic Co. It trades about -0.22 of its total potential returns per unit of risk. E Lead Electronic Co is currently generating about -0.21 per unit of volatility. If you would invest  6,280  in E Lead Electronic Co on October 9, 2024 and sell it today you would lose (290.00) from holding E Lead Electronic Co or give up 4.62% of portfolio value over 90 days.

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

Lung Hwa Electronics  vs.  E Lead Electronic Co

Lung Hwa Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lung Hwa Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

E Lead Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E Lead Electronic Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Lung Hwa and E Lead

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

The idea behind Lung Hwa Electronics and E Lead Electronic 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.