Correlation Between Industrial Investment and HEG
Can any of the company-specific risk be diversified away by investing in both Industrial Investment and HEG 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 Industrial Investment and HEG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrial Investment Trust and HEG Limited, you can compare the effects of market volatilities on Industrial Investment and HEG 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 Industrial Investment with a short position of HEG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Investment and HEG.
Diversification Opportunities for Industrial Investment and HEG
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Industrial and HEG is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Investment Trust and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited and Industrial Investment 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 Industrial Investment Trust are associated (or correlated) with HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of Industrial Investment i.e., Industrial Investment and HEG go up and down completely randomly.
Pair Corralation between Industrial Investment and HEG
Assuming the 90 days trading horizon Industrial Investment Trust is expected to under-perform the HEG. In addition to that, Industrial Investment is 1.11 times more volatile than HEG Limited. It trades about -0.57 of its total potential returns per unit of risk. HEG Limited is currently generating about 0.1 per unit of volatility. If you would invest 37,695 in HEG Limited on December 8, 2024 and sell it today you would earn a total of 1,705 from holding HEG Limited or generate 4.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Investment Trust vs. HEG Limited
Performance |
| Timeline |
| Industrial Investment |
| HEG Limited |
Industrial Investment and HEG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Investment and HEG
The main advantage of trading using opposite Industrial Investment and HEG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Investment position performs unexpectedly, HEG 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 HEG will offset losses from the drop in HEG's long position.The idea behind Industrial Investment Trust and HEG Limited 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.
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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