Correlation Between DLH Holdings and Lichen China

Can any of the company-specific risk be diversified away by investing in both DLH Holdings and Lichen China 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 DLH Holdings and Lichen China into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DLH Holdings Corp and Lichen China Limited, you can compare the effects of market volatilities on DLH Holdings and Lichen China 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 DLH Holdings with a short position of Lichen China. Check out your portfolio center. Please also check ongoing floating volatility patterns of DLH Holdings and Lichen China.

Diversification Opportunities for DLH Holdings and Lichen China

0.81

Correlation Coefficient

DLH Holdings  Lichen China

Very poor diversification

The 3 months correlation between DLH and Lichen is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding DLH Holdings Corp and Lichen China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lichen China Limited and DLH Holdings 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 DLH Holdings Corp are associated (or correlated) with Lichen China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lichen China Limited has no effect on the direction of DLH Holdings i.e., DLH Holdings and Lichen China go up and down completely randomly.

Pair Corralation between DLH Holdings and Lichen China

Given the investment horizon of 90 days DLH Holdings Corp is expected to generate 0.17 times more return on investment than Lichen China. However, DLH Holdings Corp is 6.0 times less risky than Lichen China. It trades about -0.12 of its potential returns per unit of risk. Lichen China Limited is currently generating about -0.27 per unit of risk. If you would invest  903.00  in DLH Holdings Corp on October 11, 2024 and sell it today you would lose (117.00) from holding DLH Holdings Corp or give up 12.96% of portfolio value over 90 days.

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

DLH Holdings Corp  vs.  Lichen China Limited

DLH Holdings Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DLH Holdings Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Lichen China Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lichen China Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with DLH Holdings and Lichen China

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

The idea behind DLH Holdings Corp and Lichen China Limited 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.