Correlation Between E Lead and Lian Hwa

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

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

Diversification Opportunities for E Lead and Lian Hwa

-0.85

Correlation Coefficient

E Lead  Lian Hwa

Pay attention - limited upside

The 3 months correlation between 2497 and Lian is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding E Lead Electronic Co 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 E Lead 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 E Lead Electronic Co 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 E Lead i.e., E Lead and Lian Hwa go up and down completely randomly.

Pair Corralation between E Lead and Lian Hwa

Assuming the 90 days trading horizon E Lead Electronic Co is expected to under-perform the Lian Hwa. But the stock apears to be less risky and, when comparing its historical volatility, E Lead Electronic Co is 2.14 times less risky than Lian Hwa. The stock trades about -0.21 of its potential returns per unit of risk. The 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 9, 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 Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

E Lead Electronic Co  vs.  Lian Hwa Foods

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.

Lian Hwa Foods

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 16 (%) 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 E Lead and Lian Hwa

The main advantage of trading using opposite E Lead and Lian Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E Lead 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 E Lead Electronic Co 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.