Correlation Between Huaneng Power and GMO Internet

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

By analyzing existing cross correlation between Huaneng Power International and GMO Internet, you can compare the effects of market volatilities on Huaneng Power and GMO Internet 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 Huaneng Power with a short position of GMO Internet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaneng Power and GMO Internet.

Diversification Opportunities for Huaneng Power and GMO Internet

-0.18

Correlation Coefficient

Huaneng Power  GMO Internet

Good diversification

The 3 months correlation between Huaneng and GMO is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Power International and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Huaneng Power 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 Huaneng Power International are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Huaneng Power i.e., Huaneng Power and GMO Internet go up and down completely randomly.

Pair Corralation between Huaneng Power and GMO Internet

Assuming the 90 days trading horizon Huaneng Power is expected to generate 2.48 times less return on investment than GMO Internet. But when comparing it to its historical volatility, Huaneng Power International is 1.88 times less risky than GMO Internet. It trades about 0.06 of its potential returns per unit of risk. GMO Internet is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  365.00  in GMO Internet on October 6, 2024 and sell it today you would earn a total of  1,255  from holding GMO Internet or generate 343.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.68%
Values	Daily Returns

Huaneng Power International  vs.  GMO Internet

Huaneng Power Intern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaneng Power International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

GMO Internet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Huaneng Power and GMO Internet

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

The idea behind Huaneng Power International and GMO Internet 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.