Correlation Between Merida Industry and Hong Ho

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

By analyzing existing cross correlation between Merida Industry Co and Hong Ho Precision, you can compare the effects of market volatilities on Merida Industry and Hong Ho 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 Merida Industry with a short position of Hong Ho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merida Industry and Hong Ho.

Diversification Opportunities for Merida Industry and Hong Ho

-0.33

Correlation Coefficient

Merida Industry  Hong Ho

Very good diversification

The 3 months correlation between Merida and Hong is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Merida Industry Co and Hong Ho Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Ho Precision and Merida Industry 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 Merida Industry Co are associated (or correlated) with Hong Ho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Ho Precision has no effect on the direction of Merida Industry i.e., Merida Industry and Hong Ho go up and down completely randomly.

Pair Corralation between Merida Industry and Hong Ho

Assuming the 90 days trading horizon Merida Industry Co is expected to under-perform the Hong Ho. But the stock apears to be less risky and, when comparing its historical volatility, Merida Industry Co is 1.54 times less risky than Hong Ho. The stock trades about -0.33 of its potential returns per unit of risk. The Hong Ho Precision is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,435  in Hong Ho Precision on September 23, 2024 and sell it today you would lose (340.00) from holding Hong Ho Precision or give up 7.67% of portfolio value over 90 days.

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

Merida Industry Co  vs.  Hong Ho Precision

Merida Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merida Industry Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Hong Ho Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hong Ho Precision has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hong Ho is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Merida Industry and Hong Ho

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

The idea behind Merida Industry Co and Hong Ho Precision 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.