Correlation Between HNX 30 and Investment

Can any of the company-specific risk be diversified away by investing in both HNX 30 and Investment 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 HNX 30 and Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HNX 30 and Investment and Industrial, you can compare the effects of market volatilities on HNX 30 and Investment 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 HNX 30 with a short position of Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of HNX 30 and Investment.

Diversification Opportunities for HNX 30 and Investment

0.8

Correlation Coefficient

HNX 30  Investment

Very poor diversification

The 3 months correlation between HNX and Investment is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding HNX 30 and Investment and Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment and Industrial and HNX 30 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 HNX 30 are associated (or correlated) with Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment and Industrial has no effect on the direction of HNX 30 i.e., HNX 30 and Investment go up and down completely randomly.

Pair Corralation between HNX 30 and Investment

Assuming the 90 days trading horizon HNX 30 is expected to under-perform the Investment. But the index apears to be less risky and, when comparing its historical volatility, HNX 30 is 1.48 times less risky than Investment. The index trades about -0.06 of its potential returns per unit of risk. The Investment and Industrial is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  6,924,603  in Investment and Industrial on September 16, 2024 and sell it today you would lose (154,603) from holding Investment and Industrial or give up 2.23% of portfolio value over 90 days.

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

HNX 30  vs.  Investment and Industrial

Pair Trading with HNX 30 and Investment

The main advantage of trading using opposite HNX 30 and Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HNX 30 position performs unexpectedly, Investment 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 Investment will offset losses from the drop in Investment's long position.

The idea behind HNX 30 and Investment and Industrial 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.