Correlation Between Hufvudstaden and GuocoLand

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

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

Diversification Opportunities for Hufvudstaden and GuocoLand

0.13

Correlation Coefficient

Hufvudstaden  GuocoLand

Average diversification

The 3 months correlation between Hufvudstaden and GuocoLand is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Hufvudstaden AB and GuocoLand Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GuocoLand Limited and Hufvudstaden 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 Hufvudstaden AB are associated (or correlated) with GuocoLand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GuocoLand Limited has no effect on the direction of Hufvudstaden i.e., Hufvudstaden and GuocoLand go up and down completely randomly.

Pair Corralation between Hufvudstaden and GuocoLand

Assuming the 90 days trading horizon Hufvudstaden AB is expected to generate 2.71 times more return on investment than GuocoLand. However, Hufvudstaden is 2.71 times more volatile than GuocoLand Limited. It trades about -0.01 of its potential returns per unit of risk. GuocoLand Limited is currently generating about -0.07 per unit of risk. If you would invest  1,069  in Hufvudstaden AB on December 1, 2024 and sell it today you would lose (11.00) from holding Hufvudstaden AB or give up 1.03% of portfolio value over 90 days.

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

Hufvudstaden AB  vs.  GuocoLand Limited

Hufvudstaden AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hufvudstaden AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hufvudstaden is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

GuocoLand Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days GuocoLand Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, GuocoLand 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 Hufvudstaden and GuocoLand

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

The idea behind Hufvudstaden AB and GuocoLand Limited 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.