Correlation Between Hong Leong and Harn Len

Can any of the company-specific risk be diversified away by investing in both Hong Leong and Harn Len 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 Hong Leong and Harn Len into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hong Leong Bank and Harn Len, you can compare the effects of market volatilities on Hong Leong and Harn Len 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 Hong Leong with a short position of Harn Len. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Leong and Harn Len.

Diversification Opportunities for Hong Leong and Harn Len

-0.4

Correlation Coefficient

Hong Leong  Harn Len

Very good diversification

The 3 months correlation between Hong and Harn is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hong Leong Bank and Harn Len in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harn Len and Hong Leong 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 Hong Leong Bank are associated (or correlated) with Harn Len. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harn Len has no effect on the direction of Hong Leong i.e., Hong Leong and Harn Len go up and down completely randomly.

Pair Corralation between Hong Leong and Harn Len

Assuming the 90 days trading horizon Hong Leong Bank is expected to generate 0.32 times more return on investment than Harn Len. However, Hong Leong Bank is 3.09 times less risky than Harn Len. It trades about -0.21 of its potential returns per unit of risk. Harn Len is currently generating about -0.09 per unit of risk. If you would invest  2,088  in Hong Leong Bank on September 25, 2024 and sell it today you would lose (68.00) from holding Hong Leong Bank or give up 3.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Hong Leong Bank  vs.  Harn Len

Hong Leong Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hong Leong Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hong Leong is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Harn Len

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Harn Len are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Harn Len is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Hong Leong and Harn Len

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

The idea behind Hong Leong Bank and Harn Len 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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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.