Correlation Between AOYAMA TRADING and HK Electric

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

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

Diversification Opportunities for AOYAMA TRADING and HK Electric

0.74

Correlation Coefficient

AOYAMA TRADING  HK Electric

Poor diversification

The 3 months correlation between AOYAMA and HKT is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding AOYAMA TRADING 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 AOYAMA TRADING 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 AOYAMA TRADING 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 AOYAMA TRADING i.e., AOYAMA TRADING and HK Electric go up and down completely randomly.

Pair Corralation between AOYAMA TRADING and HK Electric

Assuming the 90 days horizon AOYAMA TRADING is expected to under-perform the HK Electric. In addition to that, AOYAMA TRADING is 1.2 times more volatile than HK Electric Investments. It trades about -0.22 of its total potential returns per unit of risk. HK Electric Investments is currently generating about 0.17 per unit of volatility. If you would invest  63.00  in HK Electric Investments on October 5, 2024 and sell it today you would earn a total of  2.00  from holding HK Electric Investments or generate 3.17% return on investment over 90 days.

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

AOYAMA TRADING  vs.  HK Electric Investments

AOYAMA TRADING

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days AOYAMA TRADING has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, AOYAMA TRADING reported solid returns over the last few months and may actually be approaching a breakup point.

HK Electric Investments

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days HK Electric Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively unsteady basic indicators, HK Electric may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with AOYAMA TRADING and HK Electric

The main advantage of trading using opposite AOYAMA TRADING and HK Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AOYAMA TRADING 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 AOYAMA TRADING 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.