Correlation Between Mistras and Lichen China

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

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

Diversification Opportunities for Mistras and Lichen China

-0.5

Correlation Coefficient

Mistras  Lichen China

Very good diversification

The 3 months correlation between Mistras and Lichen is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Mistras Group 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 Mistras 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 Mistras Group 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 Mistras i.e., Mistras and Lichen China go up and down completely randomly.

Pair Corralation between Mistras and Lichen China

Allowing for the 90-day total investment horizon Mistras is expected to generate 2.8 times less return on investment than Lichen China. But when comparing it to its historical volatility, Mistras Group is 3.4 times less risky than Lichen China. It trades about 0.06 of its potential returns per unit of risk. Lichen China Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  175.00  in Lichen China Limited on September 4, 2024 and sell it today you would earn a total of  30.00  from holding Lichen China Limited or generate 17.14% return on investment over 90 days.

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

Mistras Group  vs.  Lichen China Limited

Mistras Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mistras Group 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 technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Lichen China Limited

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lichen China Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Lichen China displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mistras and Lichen China

The main advantage of trading using opposite Mistras and Lichen China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mistras 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 Mistras Group 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.