Correlation Between HK Electric and Waste Management

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

Diversification Opportunities for HK Electric and Waste Management

0.74

Correlation Coefficient

HK Electric  Waste Management

Poor diversification

The 3 months correlation between HKT and Waste is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of HK Electric i.e., HK Electric and Waste Management go up and down completely randomly.

Pair Corralation between HK Electric and Waste Management

Assuming the 90 days trading horizon HK Electric is expected to generate 5.16 times less return on investment than Waste Management. But when comparing it to its historical volatility, HK Electric Investments is 1.96 times less risky than Waste Management. It trades about 0.1 of its potential returns per unit of risk. Waste Management is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  19,676  in Waste Management on September 5, 2024 and sell it today you would earn a total of  1,709  from holding Waste Management or generate 8.69% return on investment over 90 days.

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

HK Electric Investments  vs.  Waste Management

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Waste Management

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Waste Management reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HK Electric and Waste Management

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

The idea behind HK Electric Investments and Waste Management 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.