Correlation Between TDT Investment and HNX

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

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

Diversification Opportunities for TDT Investment and HNX

0.54

Correlation Coefficient

TDT Investment  HNX

Very weak diversification

The 3 months correlation between TDT and HNX is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding TDT Investment and and HNX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNX and TDT Investment 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 TDT Investment and are associated (or correlated) with HNX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNX has no effect on the direction of TDT Investment i.e., TDT Investment and HNX go up and down completely randomly.

Pair Corralation between TDT Investment and HNX

Assuming the 90 days trading horizon TDT Investment and is expected to generate 1.62 times more return on investment than HNX. However, TDT Investment is 1.62 times more volatile than HNX. It trades about 0.08 of its potential returns per unit of risk. HNX is currently generating about -0.07 per unit of risk. If you would invest  700,000  in TDT Investment and on September 29, 2024 and sell it today you would earn a total of  30,000  from holding TDT Investment and or generate 4.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.48%
Values	Daily Returns

TDT Investment and  vs.  HNX

Pair Trading with TDT Investment and HNX

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

The idea behind TDT Investment and and HNX 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.