Correlation Between Hua Hong and United Insurance

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

By analyzing existing cross correlation between Hua Hong Semiconductor and United Insurance Holdings, you can compare the effects of market volatilities on Hua Hong and United Insurance 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 Hua Hong with a short position of United Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Hong and United Insurance.

Diversification Opportunities for Hua Hong and United Insurance

-0.25

Correlation Coefficient

Hua Hong  United Insurance

Very good diversification

The 3 months correlation between Hua and United is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Hua Hong Semiconductor and United Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Insurance Holdings and Hua Hong 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 Hua Hong Semiconductor are associated (or correlated) with United Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Insurance Holdings has no effect on the direction of Hua Hong i.e., Hua Hong and United Insurance go up and down completely randomly.

Pair Corralation between Hua Hong and United Insurance

Assuming the 90 days horizon Hua Hong Semiconductor is expected to generate 2.23 times more return on investment than United Insurance. However, Hua Hong is 2.23 times more volatile than United Insurance Holdings. It trades about 0.21 of its potential returns per unit of risk. United Insurance Holdings is currently generating about -0.04 per unit of risk. If you would invest  262.00  in Hua Hong Semiconductor on December 20, 2024 and sell it today you would earn a total of  186.00  from holding Hua Hong Semiconductor or generate 70.99% return on investment over 90 days.

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

Hua Hong Semiconductor  vs.  United Insurance Holdings

Hua Hong Semiconductor

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Hong Semiconductor are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hua Hong reported solid returns over the last few months and may actually be approaching a breakup point.

United Insurance Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United Insurance is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hua Hong and United Insurance

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

The idea behind Hua Hong Semiconductor and United Insurance Holdings 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.