Correlation Between HK Electric and Constellation Software

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

Diversification Opportunities for HK Electric and Constellation Software

0.42

Correlation Coefficient

HK Electric  Constellation Software

Very weak diversification

The 3 months correlation between HKT and Constellation is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software 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 Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of HK Electric i.e., HK Electric and Constellation Software go up and down completely randomly.

Pair Corralation between HK Electric and Constellation Software

Assuming the 90 days trading horizon HK Electric Investments is expected to generate 0.62 times more return on investment than Constellation Software. However, HK Electric Investments is 1.61 times less risky than Constellation Software. It trades about 0.13 of its potential returns per unit of risk. Constellation Software is currently generating about 0.03 per unit of risk. If you would invest  61.00  in HK Electric Investments on October 9, 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 Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

HK Electric Investments  vs.  Constellation Software

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.

Constellation Software

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HK Electric and Constellation Software

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

The idea behind HK Electric Investments and Constellation Software 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.