Correlation Between Hong Leong and Hengyuan Refining

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

By analyzing existing cross correlation between Hong Leong Bank and Hengyuan Refining, you can compare the effects of market volatilities on Hong Leong and Hengyuan Refining 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 Leong with a short position of Hengyuan Refining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Leong and Hengyuan Refining.

Diversification Opportunities for Hong Leong and Hengyuan Refining

-0.48

Correlation Coefficient

Hong Leong  Hengyuan Refining

Very good diversification

The 3 months correlation between Hong and Hengyuan is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Hong Leong Bank and Hengyuan Refining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengyuan Refining and Hong Leong 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 Leong Bank are associated (or correlated) with Hengyuan Refining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengyuan Refining has no effect on the direction of Hong Leong i.e., Hong Leong and Hengyuan Refining go up and down completely randomly.

Pair Corralation between Hong Leong and Hengyuan Refining

Assuming the 90 days trading horizon Hong Leong Bank is expected to generate 0.43 times more return on investment than Hengyuan Refining. However, Hong Leong Bank is 2.33 times less risky than Hengyuan Refining. It trades about 0.07 of its potential returns per unit of risk. Hengyuan Refining is currently generating about -0.13 per unit of risk. If you would invest  1,992  in Hong Leong Bank on December 24, 2024 and sell it today you would earn a total of  56.00  from holding Hong Leong Bank or generate 2.81% return on investment over 90 days.

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

Hong Leong Bank  vs.  Hengyuan Refining

Hong Leong Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Leong Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Hong Leong is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Hengyuan Refining

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hengyuan Refining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Hong Leong and Hengyuan Refining

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

The idea behind Hong Leong Bank and Hengyuan Refining 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.