Correlation Between New Advanced and Hong Tai

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

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

Diversification Opportunities for New Advanced and Hong Tai

-0.25

Correlation Coefficient

New Advanced  Hong Tai

Very good diversification

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

Pair Corralation between New Advanced and Hong Tai

Assuming the 90 days trading horizon New Advanced is expected to generate 1.11 times less return on investment than Hong Tai. In addition to that, New Advanced is 3.32 times more volatile than Hong Tai Electric. It trades about 0.16 of its total potential returns per unit of risk. Hong Tai Electric is currently generating about 0.57 per unit of volatility. If you would invest  3,090  in Hong Tai Electric on December 4, 2024 and sell it today you would earn a total of  360.00  from holding Hong Tai Electric or generate 11.65% return on investment over 90 days.

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

New Advanced Electronics  vs.  Hong Tai Electric

New Advanced Electronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Advanced Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, New Advanced showed solid returns over the last few months and may actually be approaching a breakup point.

Hong Tai Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hong Tai Electric has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with New Advanced and Hong Tai

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

The idea behind New Advanced Electronics and Hong Tai Electric 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.