Correlation Between HK Electric and Nucor
Can any of the company-specific risk be diversified away by investing in both HK Electric and Nucor 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 Nucor 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 Nucor, you can compare the effects of market volatilities on HK Electric and Nucor 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 Nucor. Check out your portfolio center. Please also check ongoing floating volatility patterns of HK Electric and Nucor.
Diversification Opportunities for HK Electric and Nucor
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between HKT and Nucor is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and Nucor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor 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 Nucor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor has no effect on the direction of HK Electric i.e., HK Electric and Nucor go up and down completely randomly.
Pair Corralation between HK Electric and Nucor
Assuming the 90 days trading horizon HK Electric is expected to generate 7.16 times less return on investment than Nucor. But when comparing it to its historical volatility, HK Electric Investments is 5.7 times less risky than Nucor. It trades about 0.1 of its potential returns per unit of risk. Nucor is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 13,028 in Nucor on September 1, 2024 and sell it today you would earn a total of 1,466 from holding Nucor or generate 11.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
HK Electric Investments vs. Nucor
Performance |
| Timeline |
| HK Electric Investments |
| Nucor |
HK Electric and Nucor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HK Electric and Nucor
The main advantage of trading using opposite HK Electric and Nucor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HK Electric position performs unexpectedly, Nucor 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 Nucor will offset losses from the drop in Nucor's long position.| HK Electric vs. Apple Inc | HK Electric vs. Apple Inc | HK Electric vs. Apple Inc | HK Electric vs. Apple Inc |
| Nucor vs. BW OFFSHORE LTD | Nucor vs. PennyMac Mortgage Investment | Nucor vs. HK Electric Investments | Nucor vs. Strategic Investments AS |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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