Correlation Between Hyundai and Electrica
Can any of the company-specific risk be diversified away by investing in both Hyundai and Electrica 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 Hyundai and Electrica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hyundai Motor and Electrica SA, you can compare the effects of market volatilities on Hyundai and Electrica 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 Hyundai with a short position of Electrica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hyundai and Electrica.
Diversification Opportunities for Hyundai and Electrica
Very poor diversification
The 3 months correlation between Hyundai and Electrica is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Motor and Electrica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electrica SA and Hyundai 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 Hyundai Motor are associated (or correlated) with Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electrica SA has no effect on the direction of Hyundai i.e., Hyundai and Electrica go up and down completely randomly.
Pair Corralation between Hyundai and Electrica
Assuming the 90 days trading horizon Hyundai Motor is expected to under-perform the Electrica. In addition to that, Hyundai is 3.24 times more volatile than Electrica SA. It trades about -0.18 of its total potential returns per unit of risk. Electrica SA is currently generating about -0.22 per unit of volatility. If you would invest 1,390 in Electrica SA on September 5, 2024 and sell it today you would lose (90.00) from holding Electrica SA or give up 6.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hyundai Motor vs. Electrica SA
Performance |
| Timeline |
| Hyundai Motor |
| Electrica SA |
Hyundai and Electrica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hyundai and Electrica
The main advantage of trading using opposite Hyundai and Electrica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hyundai position performs unexpectedly, Electrica 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 Electrica will offset losses from the drop in Electrica's long position.| Hyundai vs. New Residential Investment | Hyundai vs. Bankers Investment Trust | Hyundai vs. Federal Realty Investment | Hyundai vs. MTI Wireless Edge |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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