Correlation Between Hua Hong and NiSource

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

Diversification Opportunities for Hua Hong and NiSource

-0.38

Correlation Coefficient

Hua Hong  NiSource

Very good diversification

The 3 months correlation between Hua and NiSource is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Hua Hong Semiconductor and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource 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 NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of Hua Hong i.e., Hua Hong and NiSource go up and down completely randomly.

Pair Corralation between Hua Hong and NiSource

Assuming the 90 days horizon Hua Hong Semiconductor is expected to generate 4.02 times more return on investment than NiSource. However, Hua Hong is 4.02 times more volatile than NiSource. It trades about 0.04 of its potential returns per unit of risk. NiSource is currently generating about 0.15 per unit of risk. If you would invest  199.00  in Hua Hong Semiconductor on October 9, 2024 and sell it today you would earn a total of  49.00  from holding Hua Hong Semiconductor or generate 24.62% 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.  NiSource

Hua Hong Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hua Hong Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

NiSource

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NiSource may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hua Hong and NiSource

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

The idea behind Hua Hong Semiconductor and NiSource 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.