Correlation Between Hua Nan and Lihtai Construction

Can any of the company-specific risk be diversified away by investing in both Hua Nan and Lihtai Construction 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 Hua Nan and Lihtai Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hua Nan Financial and Lihtai Construction Enterprise, you can compare the effects of market volatilities on Hua Nan and Lihtai Construction 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 Hua Nan with a short position of Lihtai Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Nan and Lihtai Construction.

Diversification Opportunities for Hua Nan and Lihtai Construction

0.56

Correlation Coefficient

Hua Nan  Lihtai Construction

Very weak diversification

The 3 months correlation between Hua and Lihtai is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Hua Nan Financial and Lihtai Construction Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lihtai Construction and Hua Nan 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 Hua Nan Financial are associated (or correlated) with Lihtai Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lihtai Construction has no effect on the direction of Hua Nan i.e., Hua Nan and Lihtai Construction go up and down completely randomly.

Pair Corralation between Hua Nan and Lihtai Construction

Assuming the 90 days trading horizon Hua Nan is expected to generate 1.03 times less return on investment than Lihtai Construction. In addition to that, Hua Nan is 1.42 times more volatile than Lihtai Construction Enterprise. It trades about 0.16 of its total potential returns per unit of risk. Lihtai Construction Enterprise is currently generating about 0.24 per unit of volatility. If you would invest  8,160  in Lihtai Construction Enterprise on December 27, 2024 and sell it today you would earn a total of  650.00  from holding Lihtai Construction Enterprise or generate 7.97% return on investment over 90 days.

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

Hua Nan Financial  vs.  Lihtai Construction Enterprise

Hua Nan Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Nan Financial are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hua Nan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lihtai Construction

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lihtai Construction Enterprise are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lihtai Construction may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Hua Nan and Lihtai Construction

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

The idea behind Hua Nan Financial and Lihtai Construction Enterprise 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.