Correlation Between Hua Eng and Hong Tai
Can any of the company-specific risk be diversified away by investing in both Hua Eng and Hong Tai 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 Hua Eng and Hong Tai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hua Eng Wire and Hong Tai Electric, you can compare the effects of market volatilities on Hua Eng and Hong Tai 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 Hua Eng with a short position of Hong Tai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Eng and Hong Tai.
Diversification Opportunities for Hua Eng and Hong Tai
Poor diversification
The 3 months correlation between Hua and Hong is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hua Eng Wire and Hong Tai Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Tai Electric and Hua Eng 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 Hua Eng Wire are associated (or correlated) with Hong Tai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Tai Electric has no effect on the direction of Hua Eng i.e., Hua Eng and Hong Tai go up and down completely randomly.
Pair Corralation between Hua Eng and Hong Tai
Assuming the 90 days trading horizon Hua Eng Wire is expected to generate 1.22 times more return on investment than Hong Tai. However, Hua Eng is 1.22 times more volatile than Hong Tai Electric. It trades about -0.04 of its potential returns per unit of risk. Hong Tai Electric is currently generating about -0.4 per unit of risk. If you would invest 2,595 in Hua Eng Wire on November 3, 2024 and sell it today you would lose (30.00) from holding Hua Eng Wire or give up 1.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hua Eng Wire vs. Hong Tai Electric
Performance |
| Timeline |
| Hua Eng Wire |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Hong Tai Electric |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Hua Eng and Hong Tai Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hua Eng and Hong Tai
The main advantage of trading using opposite Hua Eng and Hong Tai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hua Eng position performs unexpectedly, Hong Tai 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 Hong Tai will offset losses from the drop in Hong Tai's long position.The idea behind Hua Eng Wire and Hong Tai 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.Check out your portfolio center.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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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