Correlation Between Reward Wool and Hua Eng

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

By analyzing existing cross correlation between Reward Wool Industry and Hua Eng Wire, you can compare the effects of market volatilities on Reward Wool and Hua Eng 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 Reward Wool with a short position of Hua Eng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reward Wool and Hua Eng.

Diversification Opportunities for Reward Wool and Hua Eng

0.07

Correlation Coefficient

Reward Wool  Hua Eng

Significant diversification

The 3 months correlation between Reward and Hua is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Reward Wool Industry and Hua Eng Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Eng Wire and Reward Wool 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 Reward Wool Industry are associated (or correlated) with Hua Eng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Eng Wire has no effect on the direction of Reward Wool i.e., Reward Wool and Hua Eng go up and down completely randomly.

Pair Corralation between Reward Wool and Hua Eng

Assuming the 90 days trading horizon Reward Wool is expected to generate 6.92 times less return on investment than Hua Eng. But when comparing it to its historical volatility, Reward Wool Industry is 1.67 times less risky than Hua Eng. It trades about 0.0 of its potential returns per unit of risk. Hua Eng Wire is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,805  in Hua Eng Wire on December 5, 2024 and sell it today you would lose (15.00) from holding Hua Eng Wire or give up 0.53% of portfolio value over 90 days.

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

Reward Wool Industry  vs.  Hua Eng Wire

Reward Wool Industry

Risk-Adjusted Performance

Weak

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

Hua Eng Wire

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Reward Wool and Hua Eng

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

The idea behind Reward Wool Industry and Hua Eng Wire 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.