Correlation Between Lien Chang and Evergreen Steel

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

By analyzing existing cross correlation between Lien Chang Electronic and Evergreen Steel Corp, you can compare the effects of market volatilities on Lien Chang and Evergreen Steel 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 Lien Chang with a short position of Evergreen Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lien Chang and Evergreen Steel.

Diversification Opportunities for Lien Chang and Evergreen Steel

-0.31

Correlation Coefficient

Lien Chang  Evergreen Steel

Very good diversification

The 3 months correlation between Lien and Evergreen is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Lien Chang Electronic and Evergreen Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evergreen Steel Corp and Lien Chang 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 Lien Chang Electronic are associated (or correlated) with Evergreen Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evergreen Steel Corp has no effect on the direction of Lien Chang i.e., Lien Chang and Evergreen Steel go up and down completely randomly.

Pair Corralation between Lien Chang and Evergreen Steel

Assuming the 90 days trading horizon Lien Chang Electronic is expected to under-perform the Evergreen Steel. In addition to that, Lien Chang is 1.05 times more volatile than Evergreen Steel Corp. It trades about -0.1 of its total potential returns per unit of risk. Evergreen Steel Corp is currently generating about 0.35 per unit of volatility. If you would invest  12,850  in Evergreen Steel Corp on February 8, 2024 and sell it today you would earn a total of  2,050  from holding Evergreen Steel Corp or generate 15.95% return on investment over 90 days.

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

Lien Chang Electronic  vs.  Evergreen Steel Corp

Lien Chang Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lien Chang Electronic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lien Chang is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Evergreen Steel Corp

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Evergreen Steel Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Evergreen Steel showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lien Chang and Evergreen Steel

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

The idea behind Lien Chang Electronic and Evergreen Steel 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.

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.