Correlation Between NYSE Composite and Hawaiian Electric

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

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

Diversification Opportunities for NYSE Composite and Hawaiian Electric

-0.08

Correlation Coefficient

NYSE Composite  Hawaiian Electric

Good diversification

The 3 months correlation between NYSE and Hawaiian is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Hawaiian Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian Electric and NYSE Composite 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 NYSE Composite are associated (or correlated) with Hawaiian Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaiian Electric has no effect on the direction of NYSE Composite i.e., NYSE Composite and Hawaiian Electric go up and down completely randomly.

Pair Corralation between NYSE Composite and Hawaiian Electric

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.94 times less return on investment than Hawaiian Electric. But when comparing it to its historical volatility, NYSE Composite is 8.2 times less risky than Hawaiian Electric. It trades about 0.07 of its potential returns per unit of risk. Hawaiian Electric is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,590  in Hawaiian Electric on September 24, 2024 and sell it today you would lose (89.00) from holding Hawaiian Electric or give up 5.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.42%
Values	Daily Returns

NYSE Composite  vs.  Hawaiian Electric

Pair Trading with NYSE Composite and Hawaiian Electric

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

The idea behind NYSE Composite and Hawaiian Electric 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..