Correlation Between Target and HK Electric

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

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

Diversification Opportunities for Target and HK Electric

0.46

Correlation Coefficient

Target  HK Electric

Very weak diversification

The 3 months correlation between Target and HKT is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Target 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 Target 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 Target 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 Target i.e., Target and HK Electric go up and down completely randomly.

Pair Corralation between Target and HK Electric

Assuming the 90 days horizon Target is expected to under-perform the HK Electric. In addition to that, Target is 2.96 times more volatile than HK Electric Investments. It trades about -0.2 of its total potential returns per unit of risk. HK Electric Investments is currently generating about -0.07 per unit of volatility. If you would invest  65.00  in HK Electric Investments on December 28, 2024 and sell it today you would lose (2.00) from holding HK Electric Investments or give up 3.08% of portfolio value over 90 days.

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

Target  vs.  HK Electric Investments

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

HK Electric Investments

Risk-Adjusted Performance

Very Weak

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 stable basic indicators, HK Electric is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Target and HK Electric

The main advantage of trading using opposite Target and HK Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.