Correlation Between Team and Lichen China

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

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

Diversification Opportunities for Team and Lichen China

-0.22

Correlation Coefficient

Team  Lichen China

Very good diversification

The 3 months correlation between Team and Lichen is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Team Inc 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 Team 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 Team Inc 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 Team i.e., Team and Lichen China go up and down completely randomly.

Pair Corralation between Team and Lichen China

Given the investment horizon of 90 days Team Inc is expected to under-perform the Lichen China. In addition to that, Team is 1.45 times more volatile than Lichen China Limited. It trades about -0.05 of its total potential returns per unit of risk. Lichen China Limited is currently generating about -0.02 per unit of volatility. If you would invest  200.00  in Lichen China Limited on August 31, 2024 and sell it today you would lose (14.00) from holding Lichen China Limited or give up 7.0% of portfolio value over 90 days.

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

Team Inc  vs.  Lichen China Limited

Team Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Team Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Team demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Lichen China Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lichen China Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Lichen China may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Team and Lichen China

The main advantage of trading using opposite Team and Lichen China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Team 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 Team Inc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.