Correlation Between Auto Trader and Hua Hong

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

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

Diversification Opportunities for Auto Trader and Hua Hong

-0.47

Correlation Coefficient

Auto Trader  Hua Hong

Very good diversification

The 3 months correlation between Auto and Hua is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Hua Hong Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Hong Semiconductor and Auto Trader 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 Auto Trader Group are associated (or correlated) with Hua Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Hong Semiconductor has no effect on the direction of Auto Trader i.e., Auto Trader and Hua Hong go up and down completely randomly.

Pair Corralation between Auto Trader and Hua Hong

Assuming the 90 days trading horizon Auto Trader Group is expected to under-perform the Hua Hong. But the stock apears to be less risky and, when comparing its historical volatility, Auto Trader Group is 3.88 times less risky than Hua Hong. The stock trades about -0.09 of its potential returns per unit of risk. The Hua Hong Semiconductor is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  250.00  in Hua Hong Semiconductor on December 18, 2024 and sell it today you would earn a total of  206.00  from holding Hua Hong Semiconductor or generate 82.4% return on investment over 90 days.

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

Auto Trader Group  vs.  Hua Hong Semiconductor

Auto Trader Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 18 (%) 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.

Pair Trading with Auto Trader and Hua Hong

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

The idea behind Auto Trader Group and Hua Hong Semiconductor 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.