Correlation Between Lichen China and DLH Holdings

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

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

Diversification Opportunities for Lichen China and DLH Holdings

0.81

Correlation Coefficient

Lichen China  DLH Holdings

Very poor diversification

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

Pair Corralation between Lichen China and DLH Holdings

Given the investment horizon of 90 days Lichen China Limited is expected to under-perform the DLH Holdings. In addition to that, Lichen China is 6.0 times more volatile than DLH Holdings Corp. It trades about -0.27 of its total potential returns per unit of risk. DLH Holdings Corp is currently generating about -0.12 per unit of volatility. 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

Lichen China Limited  vs.  DLH Holdings Corp

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.

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.

Pair Trading with Lichen China and DLH Holdings

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

The idea behind Lichen China Limited and DLH Holdings Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.