Correlation Between HEG and Investment Trust

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

By analyzing existing cross correlation between HEG Limited and The Investment Trust, you can compare the effects of market volatilities on HEG and Investment Trust 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 HEG with a short position of Investment Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of HEG and Investment Trust.

Diversification Opportunities for HEG and Investment Trust

-0.07

Correlation Coefficient

HEG  Investment Trust

Good diversification

The 3 months correlation between HEG and Investment is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding HEG Limited and The Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Trust and HEG 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 HEG Limited are associated (or correlated) with Investment Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Trust has no effect on the direction of HEG i.e., HEG and Investment Trust go up and down completely randomly.

Pair Corralation between HEG and Investment Trust

Assuming the 90 days trading horizon HEG Limited is expected to under-perform the Investment Trust. In addition to that, HEG is 2.49 times more volatile than The Investment Trust. It trades about -0.31 of its total potential returns per unit of risk. The Investment Trust is currently generating about -0.3 per unit of volatility. If you would invest  20,932  in The Investment Trust on October 10, 2024 and sell it today you would lose (1,504) from holding The Investment Trust or give up 7.19% of portfolio value over 90 days.

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

HEG Limited  vs.  The Investment Trust

HEG Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, HEG is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Investment Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Investment Trust is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HEG and Investment Trust

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

The idea behind HEG Limited and The Investment Trust 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.