Correlation Between BJs Wholesale and HK Electric

Can any of the company-specific risk be diversified away by investing in both BJs Wholesale and HK Electric 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 BJs Wholesale and HK Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BJs Wholesale Club and HK Electric Investments, you can compare the effects of market volatilities on BJs Wholesale and HK Electric 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 BJs Wholesale with a short position of HK Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Wholesale and HK Electric.

Diversification Opportunities for BJs Wholesale and HK Electric

0.74

Correlation Coefficient

BJs Wholesale  HK Electric

Poor diversification

The 3 months correlation between BJs and HKT is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and HK Electric Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HK Electric Investments and BJs Wholesale 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 BJs Wholesale Club are associated (or correlated) with HK Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HK Electric Investments has no effect on the direction of BJs Wholesale i.e., BJs Wholesale and HK Electric go up and down completely randomly.

Pair Corralation between BJs Wholesale and HK Electric

Assuming the 90 days horizon BJs Wholesale is expected to generate 5.28 times less return on investment than HK Electric. But when comparing it to its historical volatility, BJs Wholesale Club is 1.78 times less risky than HK Electric. It trades about 0.04 of its potential returns per unit of risk. HK Electric Investments is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  43.00  in HK Electric Investments on September 23, 2024 and sell it today you would earn a total of  22.00  from holding HK Electric Investments or generate 51.16% return on investment over 90 days.

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

BJs Wholesale Club  vs.  HK Electric Investments

BJs Wholesale Club

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BJs Wholesale reported solid returns over the last few months and may actually be approaching a breakup point.

HK Electric Investments

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HK Electric Investments are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, HK Electric is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BJs Wholesale and HK Electric

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

The idea behind BJs Wholesale Club and HK Electric Investments 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .