Correlation Between HK Electric and CARSALESCOM

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

Diversification Opportunities for HK Electric and CARSALESCOM

0.25

Correlation Coefficient

HK Electric  CARSALESCOM

Modest diversification

The 3 months correlation between HKT and CARSALESCOM is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM 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 CARSALESCOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of HK Electric i.e., HK Electric and CARSALESCOM go up and down completely randomly.

Pair Corralation between HK Electric and CARSALESCOM

Assuming the 90 days trading horizon HK Electric Investments is expected to generate 1.82 times more return on investment than CARSALESCOM. However, HK Electric is 1.82 times more volatile than CARSALESCOM. It trades about 0.12 of its potential returns per unit of risk. CARSALESCOM is currently generating about 0.03 per unit of risk. If you would invest  43.00  in HK Electric Investments on September 29, 2024 and sell it today you would earn a total of  22.00  from holding HK Electric Investments or generate 51.16% return on investment over 90 days.

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

HK Electric Investments  vs.  CARSALESCOM

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

CARSALESCOM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CARSALESCOM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CARSALESCOM is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HK Electric and CARSALESCOM

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

The idea behind HK Electric Investments and CARSALESCOM 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.