Correlation Between Hutchison Port and Pacific Basin

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

By analyzing existing cross correlation between Hutchison Port Holdings and Pacific Basin Shipping, you can compare the effects of market volatilities on Hutchison Port and Pacific Basin 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 Hutchison Port with a short position of Pacific Basin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hutchison Port and Pacific Basin.

Diversification Opportunities for Hutchison Port and Pacific Basin

0.03

Correlation Coefficient

Hutchison Port  Pacific Basin

Significant diversification

The 3 months correlation between Hutchison and Pacific is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Hutchison Port Holdings and Pacific Basin Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Basin Shipping and Hutchison Port 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 Hutchison Port Holdings are associated (or correlated) with Pacific Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Basin Shipping has no effect on the direction of Hutchison Port i.e., Hutchison Port and Pacific Basin go up and down completely randomly.

Pair Corralation between Hutchison Port and Pacific Basin

Assuming the 90 days horizon Hutchison Port Holdings is expected to generate 1.07 times more return on investment than Pacific Basin. However, Hutchison Port is 1.07 times more volatile than Pacific Basin Shipping. It trades about 0.04 of its potential returns per unit of risk. Pacific Basin Shipping is currently generating about 0.04 per unit of risk. If you would invest  355.00  in Hutchison Port Holdings on December 30, 2024 and sell it today you would earn a total of  19.00  from holding Hutchison Port Holdings or generate 5.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Hutchison Port Holdings  vs.  Pacific Basin Shipping

Hutchison Port Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hutchison Port Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, Hutchison Port showed solid returns over the last few months and may actually be approaching a breakup point.

Pacific Basin Shipping

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Basin Shipping are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Pacific Basin showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hutchison Port and Pacific Basin

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

The idea behind Hutchison Port Holdings and Pacific Basin Shipping 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.