Correlation Between Premium Catering and HUTCHMED DRC

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

By analyzing existing cross correlation between Premium Catering Limited and HUTCHMED DRC, you can compare the effects of market volatilities on Premium Catering and HUTCHMED DRC 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 Premium Catering with a short position of HUTCHMED DRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premium Catering and HUTCHMED DRC.

Diversification Opportunities for Premium Catering and HUTCHMED DRC

0.7

Correlation Coefficient

Premium Catering  HUTCHMED DRC

Poor diversification

The 3 months correlation between Premium and HUTCHMED is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Premium Catering Limited and HUTCHMED DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUTCHMED DRC and Premium Catering 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 Premium Catering Limited are associated (or correlated) with HUTCHMED DRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUTCHMED DRC has no effect on the direction of Premium Catering i.e., Premium Catering and HUTCHMED DRC go up and down completely randomly.

Pair Corralation between Premium Catering and HUTCHMED DRC

Allowing for the 90-day total investment horizon Premium Catering Limited is expected to generate 1.76 times more return on investment than HUTCHMED DRC. However, Premium Catering is 1.76 times more volatile than HUTCHMED DRC. It trades about 0.06 of its potential returns per unit of risk. HUTCHMED DRC is currently generating about 0.08 per unit of risk. If you would invest  75.00  in Premium Catering Limited on December 20, 2024 and sell it today you would earn a total of  8.00  from holding Premium Catering Limited or generate 10.67% return on investment over 90 days.

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

Premium Catering Limited  vs.  HUTCHMED DRC

Premium Catering

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Premium Catering Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Premium Catering exhibited solid returns over the last few months and may actually be approaching a breakup point.

HUTCHMED DRC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HUTCHMED DRC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, HUTCHMED DRC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premium Catering and HUTCHMED DRC

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

The idea behind Premium Catering Limited and HUTCHMED DRC 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 Valuation module to check real value of public entities based on technical and fundamental data.