Correlation Between HK Electric and AGF Management

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

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

Diversification Opportunities for HK Electric and AGF Management

0.65

Correlation Coefficient

HK Electric  AGF Management

Poor diversification

The 3 months correlation between HKT and AGF is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and AGF Management Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGF Management and HK Electric 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 HK Electric Investments are associated (or correlated) with AGF Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGF Management has no effect on the direction of HK Electric i.e., HK Electric and AGF Management go up and down completely randomly.

Pair Corralation between HK Electric and AGF Management

Assuming the 90 days trading horizon HK Electric is expected to generate 8.04 times less return on investment than AGF Management. But when comparing it to its historical volatility, HK Electric Investments is 2.27 times less risky than AGF Management. It trades about 0.08 of its potential returns per unit of risk. AGF Management Limited is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  496.00  in AGF Management Limited on September 15, 2024 and sell it today you would earn a total of  239.00  from holding AGF Management Limited or generate 48.19% return on investment over 90 days.

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

HK Electric Investments  vs.  AGF Management Limited

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.

AGF Management

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AGF Management Limited are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AGF Management reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HK Electric and AGF Management

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

The idea behind HK Electric Investments and AGF Management 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.