Correlation Between HNX and HVC Investment

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

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

Diversification Opportunities for HNX and HVC Investment

0.12

Correlation Coefficient

HNX  HVC Investment

Average diversification

The 3 months correlation between HNX and HVC is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding HNX and HVC Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HVC Investment and HNX 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 are associated (or correlated) with HVC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HVC Investment has no effect on the direction of HNX i.e., HNX and HVC Investment go up and down completely randomly.

Pair Corralation between HNX and HVC Investment

Assuming the 90 days trading horizon HNX is expected to under-perform the HVC Investment. But the index apears to be less risky and, when comparing its historical volatility, HNX is 4.01 times less risky than HVC Investment. The index trades about -0.06 of its potential returns per unit of risk. The HVC Investment and is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  812,000  in HVC Investment and on September 27, 2024 and sell it today you would earn a total of  198,000  from holding HVC Investment and or generate 24.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

HNX  vs.  HVC Investment and

Pair Trading with HNX and HVC Investment

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

The idea behind HNX and HVC Investment and 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.