Correlation Between HK Electric and Allstate

Can any of the company-specific risk be diversified away by investing in both HK Electric and Allstate 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 Allstate 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 The Allstate, you can compare the effects of market volatilities on HK Electric and Allstate 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 Allstate. Check out your portfolio center. Please also check ongoing floating volatility patterns of HK Electric and Allstate.

Diversification Opportunities for HK Electric and Allstate

0.61

Correlation Coefficient

HK Electric  Allstate

Poor diversification

The 3 months correlation between HKT and Allstate is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and The Allstate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allstate 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 Allstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allstate has no effect on the direction of HK Electric i.e., HK Electric and Allstate go up and down completely randomly.

Pair Corralation between HK Electric and Allstate

Assuming the 90 days trading horizon HK Electric is expected to generate 1.04 times less return on investment than Allstate. But when comparing it to its historical volatility, HK Electric Investments is 1.85 times less risky than Allstate. It trades about 0.13 of its potential returns per unit of risk. The Allstate is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  16,707  in The Allstate on October 10, 2024 and sell it today you would earn a total of  1,043  from holding The Allstate or generate 6.24% 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.  The Allstate

HK Electric Investments

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HK Electric Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, HK Electric may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Allstate

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Allstate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Allstate may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with HK Electric and Allstate

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

The idea behind HK Electric Investments and The Allstate 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.