Correlation Between Hung Sheng and Huaku Development

Can any of the company-specific risk be diversified away by investing in both Hung Sheng and Huaku Development 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 Hung Sheng and Huaku Development into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hung Sheng Construction and Huaku Development Co, you can compare the effects of market volatilities on Hung Sheng and Huaku Development 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 Hung Sheng with a short position of Huaku Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hung Sheng and Huaku Development.

Diversification Opportunities for Hung Sheng and Huaku Development

0.91

Correlation Coefficient

Hung Sheng  Huaku Development

Almost no diversification

The 3 months correlation between Hung and Huaku is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Hung Sheng Construction and Huaku Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaku Development and Hung Sheng 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 Hung Sheng Construction are associated (or correlated) with Huaku Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaku Development has no effect on the direction of Hung Sheng i.e., Hung Sheng and Huaku Development go up and down completely randomly.

Pair Corralation between Hung Sheng and Huaku Development

Assuming the 90 days trading horizon Hung Sheng is expected to generate 1.9 times less return on investment than Huaku Development. But when comparing it to its historical volatility, Hung Sheng Construction is 1.34 times less risky than Huaku Development. It trades about 0.19 of its potential returns per unit of risk. Huaku Development Co is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  10,650  in Huaku Development Co on March 14, 2024 and sell it today you would earn a total of  6,650  from holding Huaku Development Co or generate 62.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Hung Sheng Construction  vs.  Huaku Development Co

Hung Sheng Construction

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hung Sheng Construction are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hung Sheng showed solid returns over the last few months and may actually be approaching a breakup point.

Huaku Development

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Huaku Development Co are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Huaku Development showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hung Sheng and Huaku Development

The main advantage of trading using opposite Hung Sheng and Huaku Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hung Sheng position performs unexpectedly, Huaku Development 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 Huaku Development will offset losses from the drop in Huaku Development's long position.

The idea behind Hung Sheng Construction and Huaku Development Co 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.