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

-0.45

Correlation Coefficient

Team  Lichen China

Very good diversification

The 3 months correlation between Team and Lichen is -0.45. 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 1.87 times more volatile than Lichen China Limited. It trades about -0.14 of its total potential returns per unit of risk. Lichen China Limited is currently generating about 0.03 per unit of volatility. If you would invest  180.00  in Lichen China Limited on August 16, 2024 and sell it today you would earn a total of  1.00  from holding Lichen China Limited or generate 0.56% return on investment over 90 days.

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

Team Inc  vs.  Lichen China Limited

Team Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Team Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain 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

0 of 100

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 very healthy fundamental indicators, Lichen China is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.