Correlation Between Huaneng Power and Centrica Plc

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

By analyzing existing cross correlation between Huaneng Power International and Centrica plc, you can compare the effects of market volatilities on Huaneng Power and Centrica Plc 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 Huaneng Power with a short position of Centrica Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaneng Power and Centrica Plc.

Diversification Opportunities for Huaneng Power and Centrica Plc

0.28

Correlation Coefficient

Huaneng Power  Centrica Plc

Modest diversification

The 3 months correlation between Huaneng and Centrica is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Power International and Centrica plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrica plc and Huaneng Power 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 Huaneng Power International are associated (or correlated) with Centrica Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrica plc has no effect on the direction of Huaneng Power i.e., Huaneng Power and Centrica Plc go up and down completely randomly.

Pair Corralation between Huaneng Power and Centrica Plc

Assuming the 90 days horizon Huaneng Power International is expected to under-perform the Centrica Plc. But the pink sheet apears to be less risky and, when comparing its historical volatility, Huaneng Power International is 1.34 times less risky than Centrica Plc. The pink sheet trades about 0.0 of its potential returns per unit of risk. The Centrica plc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  145.00  in Centrica plc on September 22, 2024 and sell it today you would earn a total of  4.00  from holding Centrica plc or generate 2.76% return on investment over 90 days.

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

Huaneng Power International  vs.  Centrica plc

Huaneng Power Intern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaneng Power International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Huaneng Power is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Centrica plc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Centrica plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Centrica Plc is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Huaneng Power and Centrica Plc

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

The idea behind Huaneng Power International and Centrica plc 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.