Correlation Between Hong Tai and China Electric
Can any of the company-specific risk be diversified away by investing in both Hong Tai and China 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 Hong Tai and China Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hong Tai Electric and China Electric Manufacturing, you can compare the effects of market volatilities on Hong Tai and China 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 Hong Tai with a short position of China Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Tai and China Electric.
Diversification Opportunities for Hong Tai and China Electric
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hong and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hong Tai Electric and China Electric Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Electric Manuf and Hong Tai 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 Hong Tai Electric are associated (or correlated) with China Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Electric Manuf has no effect on the direction of Hong Tai i.e., Hong Tai and China Electric go up and down completely randomly.
Pair Corralation between Hong Tai and China Electric
Assuming the 90 days trading horizon Hong Tai Electric is expected to generate 0.66 times more return on investment than China Electric. However, Hong Tai Electric is 1.52 times less risky than China Electric. It trades about -0.11 of its potential returns per unit of risk. China Electric Manufacturing is currently generating about -0.09 per unit of risk. If you would invest 3,395 in Hong Tai Electric on October 26, 2024 and sell it today you would lose (295.00) from holding Hong Tai Electric or give up 8.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hong Tai Electric vs. China Electric Manufacturing
Performance |
| Timeline |
| Hong Tai Electric |
| China Electric Manuf |
Hong Tai and China Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hong Tai and China Electric
The main advantage of trading using opposite Hong Tai and China Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hong Tai position performs unexpectedly, China 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 China Electric will offset losses from the drop in China Electric's long position.| Hong Tai vs. Ta Ya Electric | Hong Tai vs. Hua Eng Wire | Hong Tai vs. Walsin Lihwa Corp | Hong Tai vs. Sampo Corp |
| China Electric vs. Hold Key Electric Wire | China Electric vs. Anderson Industrial Corp | China Electric vs. Carnival Industrial Corp | China Electric vs. Lee Chi Enterprises |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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