Correlation Between HK Electric and PREMIER FOODS
Can any of the company-specific risk be diversified away by investing in both HK Electric and PREMIER FOODS 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 PREMIER FOODS 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 PREMIER FOODS, you can compare the effects of market volatilities on HK Electric and PREMIER FOODS 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 PREMIER FOODS. Check out your portfolio center. Please also check ongoing floating volatility patterns of HK Electric and PREMIER FOODS.
Diversification Opportunities for HK Electric and PREMIER FOODS
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between HKT and PREMIER is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and PREMIER FOODS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PREMIER FOODS 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 PREMIER FOODS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PREMIER FOODS has no effect on the direction of HK Electric i.e., HK Electric and PREMIER FOODS go up and down completely randomly.
Pair Corralation between HK Electric and PREMIER FOODS
Assuming the 90 days trading horizon HK Electric is expected to generate 2.33 times less return on investment than PREMIER FOODS. But when comparing it to its historical volatility, HK Electric Investments is 1.67 times less risky than PREMIER FOODS. It trades about 0.04 of its potential returns per unit of risk. PREMIER FOODS is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 220.00 in PREMIER FOODS on November 19, 2024 and sell it today you would earn a total of 8.00 from holding PREMIER FOODS or generate 3.64% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
HK Electric Investments vs. PREMIER FOODS
Performance |
Timeline |
HK Electric Investments |
PREMIER FOODS |
HK Electric and PREMIER FOODS Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with HK Electric and PREMIER FOODS
The main advantage of trading using opposite HK Electric and PREMIER FOODS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HK Electric position performs unexpectedly, PREMIER FOODS 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 PREMIER FOODS will offset losses from the drop in PREMIER FOODS's long position.HK Electric vs. Tsingtao Brewery | ||
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Check out your portfolio center.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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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