Correlation Between HK Electric and Bank of America
Can any of the company-specific risk be diversified away by investing in both HK Electric and Bank of America 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 HK Electric and Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HK Electric Investments and Verizon Communications, you can compare the effects of market volatilities on HK Electric and Bank of America 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 HK Electric with a short position of Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of HK Electric and Bank of America.
Diversification Opportunities for HK Electric and Bank of America
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between HKT and Bank is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and HK Electric 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 HK Electric Investments are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of HK Electric i.e., HK Electric and Bank of America go up and down completely randomly.
Pair Corralation between HK Electric and Bank of America
Assuming the 90 days trading horizon HK Electric Investments is expected to generate 2.28 times more return on investment than Bank of America. However, HK Electric is 2.28 times more volatile than Verizon Communications. It trades about 0.11 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of risk. If you would invest 43.00 in HK Electric Investments on September 19, 2024 and sell it today you would earn a total of 20.00 from holding HK Electric Investments or generate 46.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
HK Electric Investments vs. Verizon Communications
Performance |
| Timeline |
| HK Electric Investments |
| Verizon Communications |
HK Electric and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HK Electric and Bank of America
The main advantage of trading using opposite HK Electric and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HK Electric position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| HK Electric vs. Apple Inc | HK Electric vs. Apple Inc | HK Electric vs. Apple Inc | HK Electric vs. Apple Inc |
| Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc | Bank of America vs. Apple Inc |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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