Correlation Between HNX 30 and CMC Corp

Can any of the company-specific risk be diversified away by investing in both HNX 30 and CMC Corp 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 HNX 30 and CMC Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HNX 30 and CMC Corp, you can compare the effects of market volatilities on HNX 30 and CMC Corp 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 HNX 30 with a short position of CMC Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of HNX 30 and CMC Corp.

Diversification Opportunities for HNX 30 and CMC Corp

-0.49

Correlation Coefficient

HNX 30  CMC Corp

Very good diversification

The 3 months correlation between HNX and CMC is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding HNX 30 and CMC Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Corp and HNX 30 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 HNX 30 are associated (or correlated) with CMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Corp has no effect on the direction of HNX 30 i.e., HNX 30 and CMC Corp go up and down completely randomly.

Pair Corralation between HNX 30 and CMC Corp

Assuming the 90 days trading horizon HNX 30 is expected to generate 4.1 times less return on investment than CMC Corp. But when comparing it to its historical volatility, HNX 30 is 2.38 times less risky than CMC Corp. It trades about 0.07 of its potential returns per unit of risk. CMC Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,330,000  in CMC Corp on September 27, 2024 and sell it today you would earn a total of  260,000  from holding CMC Corp or generate 4.88% return on investment over 90 days.

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

HNX 30  vs.  CMC Corp

Pair Trading with HNX 30 and CMC Corp

The main advantage of trading using opposite HNX 30 and CMC Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HNX 30 position performs unexpectedly, CMC Corp 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 CMC Corp will offset losses from the drop in CMC Corp's long position.

The idea behind HNX 30 and CMC Corp 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.