Correlation Between Lien Chang and Rafael Microelectronics

Can any of the company-specific risk be diversified away by investing in both Lien Chang and Rafael Microelectronics 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 Lien Chang and Rafael Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lien Chang Electronic and Rafael Microelectronics, you can compare the effects of market volatilities on Lien Chang and Rafael Microelectronics 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 Lien Chang with a short position of Rafael Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lien Chang and Rafael Microelectronics.

Diversification Opportunities for Lien Chang and Rafael Microelectronics

0.3

Correlation Coefficient

Lien Chang  Rafael Microelectronics

Weak diversification

The 3 months correlation between Lien and Rafael is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lien Chang Electronic and Rafael Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rafael Microelectronics and Lien Chang 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 Lien Chang Electronic are associated (or correlated) with Rafael Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rafael Microelectronics has no effect on the direction of Lien Chang i.e., Lien Chang and Rafael Microelectronics go up and down completely randomly.

Pair Corralation between Lien Chang and Rafael Microelectronics

Assuming the 90 days trading horizon Lien Chang Electronic is expected to generate 2.48 times more return on investment than Rafael Microelectronics. However, Lien Chang is 2.48 times more volatile than Rafael Microelectronics. It trades about 0.07 of its potential returns per unit of risk. Rafael Microelectronics is currently generating about -0.06 per unit of risk. If you would invest  1,335  in Lien Chang Electronic on October 4, 2024 and sell it today you would earn a total of  190.00  from holding Lien Chang Electronic or generate 14.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Lien Chang Electronic  vs.  Rafael Microelectronics

Lien Chang Electronic

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lien Chang Electronic are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lien Chang showed solid returns over the last few months and may actually be approaching a breakup point.

Rafael Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rafael Microelectronics 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.

Pair Trading with Lien Chang and Rafael Microelectronics

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

The idea behind Lien Chang Electronic and Rafael Microelectronics 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.