Correlation Between Hong Tai and USI Corp

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

By analyzing existing cross correlation between Hong Tai Electric and USI Corp, you can compare the effects of market volatilities on Hong Tai and USI Corp 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 Hong Tai with a short position of USI Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Tai and USI Corp.

Diversification Opportunities for Hong Tai and USI Corp

-0.33

Correlation Coefficient

Hong Tai  USI Corp

Very good diversification

The 3 months correlation between Hong and USI is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Hong Tai Electric and USI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USI Corp and Hong Tai 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 Hong Tai Electric are associated (or correlated) with USI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USI Corp has no effect on the direction of Hong Tai i.e., Hong Tai and USI Corp go up and down completely randomly.

Pair Corralation between Hong Tai and USI Corp

Assuming the 90 days trading horizon Hong Tai Electric is expected to generate 1.44 times more return on investment than USI Corp. However, Hong Tai is 1.44 times more volatile than USI Corp. It trades about 0.08 of its potential returns per unit of risk. USI Corp is currently generating about -0.07 per unit of risk. If you would invest  1,625  in Hong Tai Electric on September 16, 2024 and sell it today you would earn a total of  1,820  from holding Hong Tai Electric or generate 112.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Hong Tai Electric  vs.  USI Corp

Hong Tai Electric

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Tai Electric are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hong Tai is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

USI Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days USI Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Hong Tai and USI Corp

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

The idea behind Hong Tai Electric and USI 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.