Correlation Between HK Electric and Crown Holdings

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

Diversification Opportunities for HK Electric and Crown Holdings

-0.6

Correlation Coefficient

HK Electric  Crown Holdings

Excellent diversification

The 3 months correlation between HKT and Crown is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and Crown Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crown Holdings 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 Crown Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crown Holdings has no effect on the direction of HK Electric i.e., HK Electric and Crown Holdings go up and down completely randomly.

Pair Corralation between HK Electric and Crown Holdings

Assuming the 90 days trading horizon HK Electric Investments is expected to generate 1.13 times more return on investment than Crown Holdings. However, HK Electric is 1.13 times more volatile than Crown Holdings. It trades about 0.09 of its potential returns per unit of risk. Crown Holdings is currently generating about -0.46 per unit of risk. If you would invest  64.00  in HK Electric Investments on October 12, 2024 and sell it today you would earn a total of  1.00  from holding HK Electric Investments or generate 1.56% return on investment over 90 days.

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

HK Electric Investments  vs.  Crown Holdings

HK Electric Investments

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HK Electric Investments are ranked lower than 7 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Crown Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Crown Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with HK Electric and Crown Holdings

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

The idea behind HK Electric Investments and Crown Holdings 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.