Correlation Between Lianhua Supermarket and PEPKOR

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

By analyzing existing cross correlation between Lianhua Supermarket Holdings and PEPKOR LTD, you can compare the effects of market volatilities on Lianhua Supermarket and PEPKOR 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 Lianhua Supermarket with a short position of PEPKOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lianhua Supermarket and PEPKOR.

Diversification Opportunities for Lianhua Supermarket and PEPKOR

0.3

Correlation Coefficient

Lianhua Supermarket  PEPKOR

Weak diversification

The 3 months correlation between Lianhua and PEPKOR is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lianhua Supermarket Holdings and PEPKOR LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PEPKOR LTD and Lianhua Supermarket 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 Lianhua Supermarket Holdings are associated (or correlated) with PEPKOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PEPKOR LTD has no effect on the direction of Lianhua Supermarket i.e., Lianhua Supermarket and PEPKOR go up and down completely randomly.

Pair Corralation between Lianhua Supermarket and PEPKOR

Assuming the 90 days horizon Lianhua Supermarket Holdings is expected to generate 1.22 times more return on investment than PEPKOR. However, Lianhua Supermarket is 1.22 times more volatile than PEPKOR LTD. It trades about 0.1 of its potential returns per unit of risk. PEPKOR LTD is currently generating about 0.09 per unit of risk. If you would invest  2.35  in Lianhua Supermarket Holdings on December 21, 2024 and sell it today you would earn a total of  0.85  from holding Lianhua Supermarket Holdings or generate 36.17% return on investment over 90 days.

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

Lianhua Supermarket Holdings  vs.  PEPKOR LTD

Lianhua Supermarket

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lianhua Supermarket Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Lianhua Supermarket reported solid returns over the last few months and may actually be approaching a breakup point.

PEPKOR LTD

Risk-Adjusted Performance

Modest

Over the last 90 days PEPKOR LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, PEPKOR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lianhua Supermarket and PEPKOR

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

The idea behind Lianhua Supermarket Holdings and PEPKOR LTD 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.