Correlation Between Huaneng Power and Ribbon Communications

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

Diversification Opportunities for Huaneng Power and Ribbon Communications

-0.55

Correlation Coefficient

Huaneng Power  Ribbon Communications

Excellent diversification

The 3 months correlation between Huaneng and Ribbon is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Power International and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications 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 Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of Huaneng Power i.e., Huaneng Power and Ribbon Communications go up and down completely randomly.

Pair Corralation between Huaneng Power and Ribbon Communications

Assuming the 90 days trading horizon Huaneng Power International is expected to generate 1.1 times more return on investment than Ribbon Communications. However, Huaneng Power is 1.1 times more volatile than Ribbon Communications. It trades about 0.05 of its potential returns per unit of risk. Ribbon Communications is currently generating about 0.03 per unit of risk. If you would invest  29.00  in Huaneng Power International on October 4, 2024 and sell it today you would earn a total of  21.00  from holding Huaneng Power International or generate 72.41% return on investment over 90 days.

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

Huaneng Power International  vs.  Ribbon Communications

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 nearly stable basic indicators, Huaneng Power is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Ribbon Communications

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Huaneng Power and Ribbon Communications

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

The idea behind Huaneng Power International and Ribbon Communications 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.