Correlation Between Hold Key and China Electric
Can any of the company-specific risk be diversified away by investing in both Hold Key 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 Hold Key and China Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hold Key Electric Wire and China Electric Manufacturing, you can compare the effects of market volatilities on Hold Key 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 Hold Key with a short position of China Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hold Key and China Electric.
Diversification Opportunities for Hold Key and China Electric
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Hold and China is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Hold Key Electric Wire 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 Hold Key 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 Hold Key Electric Wire 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 Hold Key i.e., Hold Key and China Electric go up and down completely randomly.
Pair Corralation between Hold Key and China Electric
Assuming the 90 days trading horizon Hold Key Electric Wire is expected to generate 1.19 times more return on investment than China Electric. However, Hold Key is 1.19 times more volatile than China Electric Manufacturing. It trades about -0.14 of its potential returns per unit of risk. China Electric Manufacturing is currently generating about -0.16 per unit of risk. If you would invest 4,625 in Hold Key Electric Wire on November 4, 2024 and sell it today you would lose (165.00) from holding Hold Key Electric Wire or give up 3.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hold Key Electric Wire vs. China Electric Manufacturing
Performance |
| Timeline |
| Hold Key Electric |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
| China Electric Manuf |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Hold Key and China Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hold Key and China Electric
The main advantage of trading using opposite Hold Key and China Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hold Key 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.The idea behind Hold Key Electric Wire and China Electric Manufacturing 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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