Correlation Between Trans Asia and HNB Finance

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

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

Diversification Opportunities for Trans Asia and HNB Finance

-0.31

Correlation Coefficient

Trans Asia  HNB Finance

Very good diversification

The 3 months correlation between Trans and HNB is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Trans Asia Hotels and HNB Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNB Finance and Trans Asia 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 Trans Asia Hotels are associated (or correlated) with HNB Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNB Finance has no effect on the direction of Trans Asia i.e., Trans Asia and HNB Finance go up and down completely randomly.

Pair Corralation between Trans Asia and HNB Finance

Assuming the 90 days trading horizon Trans Asia Hotels is expected to generate 0.4 times more return on investment than HNB Finance. However, Trans Asia Hotels is 2.5 times less risky than HNB Finance. It trades about 0.04 of its potential returns per unit of risk. HNB Finance is currently generating about 0.0 per unit of risk. If you would invest  4,000  in Trans Asia Hotels on September 23, 2024 and sell it today you would earn a total of  120.00  from holding Trans Asia Hotels or generate 3.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.32%
Values	Daily Returns

Trans Asia Hotels  vs.  HNB Finance

Trans Asia Hotels

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Trans Asia Hotels are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Trans Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HNB Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HNB Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HNB Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Trans Asia and HNB Finance

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

The idea behind Trans Asia Hotels and HNB Finance 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.