Correlation Between LESTE FDO and HUSI11

Can any of the company-specific risk be diversified away by investing in both LESTE FDO and HUSI11 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 LESTE FDO and HUSI11 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LESTE FDO INV and HUSI11, you can compare the effects of market volatilities on LESTE FDO and HUSI11 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 LESTE FDO with a short position of HUSI11. Check out your portfolio center. Please also check ongoing floating volatility patterns of LESTE FDO and HUSI11.

Diversification Opportunities for LESTE FDO and HUSI11

-0.62

Correlation Coefficient

LESTE FDO  HUSI11

Excellent diversification

The 3 months correlation between LESTE and HUSI11 is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding LESTE FDO INV and HUSI11 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUSI11 and LESTE FDO 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 LESTE FDO INV are associated (or correlated) with HUSI11. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUSI11 has no effect on the direction of LESTE FDO i.e., LESTE FDO and HUSI11 go up and down completely randomly.

Pair Corralation between LESTE FDO and HUSI11

Assuming the 90 days trading horizon LESTE FDO INV is expected to under-perform the HUSI11. In addition to that, LESTE FDO is 6.25 times more volatile than HUSI11. It trades about -0.2 of its total potential returns per unit of risk. HUSI11 is currently generating about 0.22 per unit of volatility. If you would invest  121,144  in HUSI11 on September 14, 2024 and sell it today you would earn a total of  1,356  from holding HUSI11 or generate 1.12% return on investment over 90 days.

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

LESTE FDO INV  vs.  HUSI11

LESTE FDO INV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LESTE FDO INV has generated negative risk-adjusted returns adding no value to fund investors. Despite weak performance in the last few months, the Fund's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

HUSI11

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HUSI11 are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, HUSI11 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LESTE FDO and HUSI11

The main advantage of trading using opposite LESTE FDO and HUSI11 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LESTE FDO position performs unexpectedly, HUSI11 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 HUSI11 will offset losses from the drop in HUSI11's long position.

The idea behind LESTE FDO INV and HUSI11 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.