Correlation Between Lichen China and SMX Public

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

Diversification Opportunities for Lichen China and SMX Public

0.51

Correlation Coefficient

Lichen China  SMX Public

Very weak diversification

The 3 months correlation between Lichen and SMX is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lichen China Limited and SMX Public Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMX Public Limited 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 SMX Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMX Public Limited has no effect on the direction of Lichen China i.e., Lichen China and SMX Public go up and down completely randomly.

Pair Corralation between Lichen China and SMX Public

Given the investment horizon of 90 days Lichen China Limited is expected to under-perform the SMX Public. But the stock apears to be less risky and, when comparing its historical volatility, Lichen China Limited is 3.64 times less risky than SMX Public. The stock trades about -0.36 of its potential returns per unit of risk. The SMX Public Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1.69  in SMX Public Limited on December 27, 2024 and sell it today you would earn a total of  1.41  from holding SMX Public Limited or generate 83.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

Lichen China Limited  vs.  SMX Public Limited

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.

SMX Public Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SMX Public Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SMX Public showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lichen China and SMX Public

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

The idea behind Lichen China Limited and SMX Public 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.