Correlation Between Sun Sea and Lian Hwa

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

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

Diversification Opportunities for Sun Sea and Lian Hwa

-0.36

Correlation Coefficient

Sun Sea  Lian Hwa

Very good diversification

The 3 months correlation between Sun and Lian is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Sun Sea Construction 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 Sun Sea 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 Sun Sea Construction 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 Sun Sea i.e., Sun Sea and Lian Hwa go up and down completely randomly.

Pair Corralation between Sun Sea and Lian Hwa

Assuming the 90 days trading horizon Sun Sea is expected to generate 34.4 times less return on investment than Lian Hwa. But when comparing it to its historical volatility, Sun Sea Construction is 1.05 times less risky than Lian Hwa. It trades about 0.01 of its potential returns per unit of risk. Lian Hwa Foods is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  11,300  in Lian Hwa Foods on September 19, 2024 and sell it today you would earn a total of  1,300  from holding Lian Hwa Foods or generate 11.5% return on investment over 90 days.

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

Sun Sea Construction  vs.  Lian Hwa Foods

Sun Sea Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sun Sea Construction 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.

Lian Hwa Foods

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lian Hwa Foods are ranked lower than 15 (%) 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 Sun Sea and Lian Hwa

The main advantage of trading using opposite Sun Sea and Lian Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Sea 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 Sun Sea Construction 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.