Correlation Between HK Electric and AeroVironment

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

Diversification Opportunities for HK Electric and AeroVironment

0.22

Correlation Coefficient

HK Electric  AeroVironment

Modest diversification

The 3 months correlation between HKT and AeroVironment is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment 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 AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of HK Electric i.e., HK Electric and AeroVironment go up and down completely randomly.

Pair Corralation between HK Electric and AeroVironment

Assuming the 90 days trading horizon HK Electric Investments is expected to generate 0.24 times more return on investment than AeroVironment. However, HK Electric Investments is 4.23 times less risky than AeroVironment. It trades about -0.07 of its potential returns per unit of risk. AeroVironment is currently generating about -0.14 per unit of risk. If you would invest  65.00  in HK Electric Investments on December 24, 2024 and sell it today you would lose (2.00) from holding HK Electric Investments or give up 3.08% of portfolio value over 90 days.

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

HK Electric Investments  vs.  AeroVironment

HK Electric Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days HK Electric Investments has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

AeroVironment

Risk-Adjusted Performance

Very Weak

Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with HK Electric and AeroVironment

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

The idea behind HK Electric Investments and AeroVironment 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.