Correlation Between HK Electric and Hilltop Holdings

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Can any of the company-specific risk be diversified away by investing in both HK Electric and Hilltop Holdings 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 Hilltop Holdings 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 Hilltop Holdings, you can compare the effects of market volatilities on HK Electric and Hilltop Holdings 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 Hilltop Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of HK Electric and Hilltop Holdings.

Diversification Opportunities for HK Electric and Hilltop Holdings

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between HKT and Hilltop is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and Hilltop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hilltop Holdings 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 Hilltop Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hilltop Holdings has no effect on the direction of HK Electric i.e., HK Electric and Hilltop Holdings go up and down completely randomly.

Pair Corralation between HK Electric and Hilltop Holdings

Assuming the 90 days trading horizon HK Electric is expected to generate 4.08 times less return on investment than Hilltop Holdings. But when comparing it to its historical volatility, HK Electric Investments is 4.34 times less risky than Hilltop Holdings. It trades about 0.1 of its potential returns per unit of risk. Hilltop Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,804  in Hilltop Holdings on September 6, 2024 and sell it today you would earn a total of  156.00  from holding Hilltop Holdings or generate 5.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

HK Electric Investments  vs.  Hilltop Holdings

 Performance 
       Timeline  
HK Electric Investments 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in HK Electric Investments are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, HK Electric is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
Hilltop Holdings 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Hilltop Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hilltop Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HK Electric and Hilltop Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HK Electric and Hilltop Holdings

The main advantage of trading using opposite HK Electric and Hilltop Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HK Electric position performs unexpectedly, Hilltop Holdings 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 Hilltop Holdings will offset losses from the drop in Hilltop Holdings' long position.
The idea behind HK Electric Investments and Hilltop Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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