Correlation Between HNX 30 and HNX

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

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

Diversification Opportunities for HNX 30 and HNX

0.88

Correlation Coefficient

HNX 30  HNX

Very poor diversification

The 3 months correlation between HNX and HNX is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding HNX 30 and HNX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNX 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 HNX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNX has no effect on the direction of HNX 30 i.e., HNX 30 and HNX go up and down completely randomly.

Pair Corralation between HNX 30 and HNX

Assuming the 90 days trading horizon HNX 30 is expected to under-perform the HNX. In addition to that, HNX 30 is 1.5 times more volatile than HNX. It trades about -0.15 of its total potential returns per unit of risk. HNX is currently generating about -0.12 per unit of volatility. If you would invest  23,177  in HNX on October 9, 2024 and sell it today you would lose (1,048) from holding HNX or give up 4.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

HNX 30  vs.  HNX

Pair Trading with HNX 30 and HNX

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

The idea behind HNX 30 and HNX 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.