Correlation Between Lichen China and First Advantage

Can any of the company-specific risk be diversified away by investing in both Lichen China and First Advantage 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 First Advantage 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 First Advantage Corp, you can compare the effects of market volatilities on Lichen China and First Advantage 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 First Advantage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lichen China and First Advantage.

Diversification Opportunities for Lichen China and First Advantage

0.65

Correlation Coefficient

Lichen China  First Advantage

Poor diversification

The 3 months correlation between Lichen and First is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Lichen China Limited and First Advantage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Advantage 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 First Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Advantage Corp has no effect on the direction of Lichen China i.e., Lichen China and First Advantage go up and down completely randomly.

Pair Corralation between Lichen China and First Advantage

Given the investment horizon of 90 days Lichen China Limited is expected to under-perform the First Advantage. In addition to that, Lichen China is 3.43 times more volatile than First Advantage Corp. It trades about -0.36 of its total potential returns per unit of risk. First Advantage Corp is currently generating about -0.15 per unit of volatility. If you would invest  1,865  in First Advantage Corp on December 27, 2024 and sell it today you would lose (443.00) from holding First Advantage Corp or give up 23.75% of portfolio value over 90 days.

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

Lichen China Limited  vs.  First Advantage Corp

Lichen China Limited

Risk-Adjusted Performance

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 April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

First Advantage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Advantage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lichen China and First Advantage

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

The idea behind Lichen China Limited and First Advantage 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.