Correlation Between Hong Tai and China Electric

Can any of the company-specific risk be diversified away by investing in both Hong Tai and China Electric 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 China Electric 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 China Electric Manufacturing, you can compare the effects of market volatilities on Hong Tai and China Electric 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 China Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Tai and China Electric.

Diversification Opportunities for Hong Tai and China Electric

0.87

Correlation Coefficient

Hong Tai  China Electric

Very poor diversification

The 3 months correlation between Hong and China is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Hong Tai Electric and China Electric Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Electric Manuf 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 China Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Electric Manuf has no effect on the direction of Hong Tai i.e., Hong Tai and China Electric go up and down completely randomly.

Pair Corralation between Hong Tai and China Electric

Assuming the 90 days trading horizon Hong Tai Electric is expected to generate 0.98 times more return on investment than China Electric. However, Hong Tai Electric is 1.02 times less risky than China Electric. It trades about 0.03 of its potential returns per unit of risk. China Electric Manufacturing is currently generating about -0.06 per unit of risk. If you would invest  3,380  in Hong Tai Electric on December 29, 2024 and sell it today you would earn a total of  60.00  from holding Hong Tai Electric or generate 1.78% return on investment over 90 days.

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

Hong Tai Electric  vs.  China Electric Manufacturing

Hong Tai Electric

Risk-Adjusted Performance

Modest

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.

China Electric Manuf

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Electric Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, China Electric 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 Hong Tai and China Electric

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

The idea behind Hong Tai Electric and China Electric Manufacturing 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.