Correlation Between HK Electric and TTW PCL

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

Diversification Opportunities for HK Electric and TTW PCL

-0.36

Correlation Coefficient

HK Electric  TTW PCL

Very good diversification

The 3 months correlation between HKT and TTW is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and TTW PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TTW PCL 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 TTW PCL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TTW PCL has no effect on the direction of HK Electric i.e., HK Electric and TTW PCL go up and down completely randomly.

Pair Corralation between HK Electric and TTW PCL

Assuming the 90 days trading horizon HK Electric Investments is expected to generate 0.53 times more return on investment than TTW PCL. However, HK Electric Investments is 1.87 times less risky than TTW PCL. It trades about 0.17 of its potential returns per unit of risk. TTW PCL is currently generating about 0.01 per unit of risk. If you would invest  63.00  in HK Electric Investments on October 9, 2024 and sell it today you would earn a total of  2.00  from holding HK Electric Investments or generate 3.17% return on investment over 90 days.

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

HK Electric Investments  vs.  TTW PCL

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 unsteady basic indicators, HK Electric may actually be approaching a critical reversion point that can send shares even higher in February 2025.

TTW PCL

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind HK Electric Investments and TTW PCL 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.