Correlation Between National Development and HVA Foods

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

By analyzing existing cross correlation between National Development Bank and HVA Foods PLC, you can compare the effects of market volatilities on National Development and HVA Foods 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 National Development with a short position of HVA Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Development and HVA Foods.

Diversification Opportunities for National Development and HVA Foods

0.4

Correlation Coefficient

National Development  HVA Foods

Very weak diversification

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

Pair Corralation between National Development and HVA Foods

Assuming the 90 days trading horizon National Development is expected to generate 1.11 times less return on investment than HVA Foods. But when comparing it to its historical volatility, National Development Bank is 2.88 times less risky than HVA Foods. It trades about 0.27 of its potential returns per unit of risk. HVA Foods PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  310.00  in HVA Foods PLC on September 15, 2024 and sell it today you would earn a total of  80.00  from holding HVA Foods PLC or generate 25.81% return on investment over 90 days.

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

National Development Bank  vs.  HVA Foods PLC

National Development Bank

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Development Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Development sustained solid returns over the last few months and may actually be approaching a breakup point.

HVA Foods PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HVA Foods PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HVA Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Development and HVA Foods

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

The idea behind National Development Bank and HVA Foods 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.