Correlation Between HK Electric and STMicroelectronics

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

Diversification Opportunities for HK Electric and STMicroelectronics

-0.56
  Correlation Coefficient

Excellent diversification

The 3 months correlation between HKT and STMicroelectronics is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of HK Electric i.e., HK Electric and STMicroelectronics go up and down completely randomly.

Pair Corralation between HK Electric and STMicroelectronics

Assuming the 90 days trading horizon HK Electric Investments is expected to generate 0.45 times more return on investment than STMicroelectronics. However, HK Electric Investments is 2.23 times less risky than STMicroelectronics. It trades about 0.12 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.08 per unit of risk. If you would invest  61.00  in HK Electric Investments on September 29, 2024 and sell it today you would earn a total of  4.00  from holding HK Electric Investments or generate 6.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

HK Electric Investments  vs.  STMicroelectronics NV

 Performance 
       Timeline  
HK Electric Investments 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
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 uncertain basic indicators, HK Electric may actually be approaching a critical reversion point that can send shares even higher in January 2025.
STMicroelectronics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days STMicroelectronics NV 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.

HK Electric and STMicroelectronics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HK Electric and STMicroelectronics

The main advantage of trading using opposite HK Electric and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HK Electric position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.
The idea behind HK Electric Investments and STMicroelectronics NV 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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