Correlation Between Seven West and Hua Hong

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

By analyzing existing cross correlation between Seven West Media and Hua Hong Semiconductor, you can compare the effects of market volatilities on Seven West and Hua Hong 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 Seven West with a short position of Hua Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seven West and Hua Hong.

Diversification Opportunities for Seven West and Hua Hong

0.16

Correlation Coefficient

Seven West  Hua Hong

Average diversification

The 3 months correlation between Seven and Hua is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Seven West Media and Hua Hong Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Hong Semiconductor and Seven West 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 Seven West Media are associated (or correlated) with Hua Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Hong Semiconductor has no effect on the direction of Seven West i.e., Seven West and Hua Hong go up and down completely randomly.

Pair Corralation between Seven West and Hua Hong

Assuming the 90 days horizon Seven West Media is expected to under-perform the Hua Hong. In addition to that, Seven West is 1.19 times more volatile than Hua Hong Semiconductor. It trades about -0.03 of its total potential returns per unit of risk. Hua Hong Semiconductor is currently generating about 0.02 per unit of volatility. If you would invest  286.00  in Hua Hong Semiconductor on October 24, 2024 and sell it today you would earn a total of  10.00  from holding Hua Hong Semiconductor or generate 3.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.76%
Values	Daily Returns

Seven West Media  vs.  Hua Hong Semiconductor

Seven West Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seven West Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Seven West is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Hua Hong Semiconductor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Hong Semiconductor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Hua Hong reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Seven West and Hua Hong

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

The idea behind Seven West Media and Hua Hong Semiconductor 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.