Correlation Between King Chou and Lian Hwa

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

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

Diversification Opportunities for King Chou and Lian Hwa

0.63

Correlation Coefficient

King Chou  Lian Hwa

Poor diversification

The 3 months correlation between King and Lian is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding King Chou Marine 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 King Chou 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 King Chou Marine 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 King Chou i.e., King Chou and Lian Hwa go up and down completely randomly.

Pair Corralation between King Chou and Lian Hwa

Assuming the 90 days trading horizon King Chou is expected to generate 14.06 times less return on investment than Lian Hwa. But when comparing it to its historical volatility, King Chou Marine is 2.22 times less risky than Lian Hwa. It trades about 0.03 of its potential returns per unit of risk. 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 10, 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 Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

King Chou Marine  vs.  Lian Hwa Foods

King Chou Marine

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in King Chou Marine are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, King Chou is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lian Hwa Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 17 (%) 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 King Chou and Lian Hwa

The main advantage of trading using opposite King Chou and Lian Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if King Chou 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 King Chou Marine 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.