Correlation Between Clean Science and Home Center

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

By analyzing existing cross correlation between Clean Science co and Home Center Holdings, you can compare the effects of market volatilities on Clean Science and Home Center 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 Clean Science with a short position of Home Center. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clean Science and Home Center.

Diversification Opportunities for Clean Science and Home Center

0.63

Correlation Coefficient

Clean Science  Home Center

Poor diversification

The 3 months correlation between Clean and Home is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Clean Science co and Home Center Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Center Holdings and Clean Science 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 Clean Science co are associated (or correlated) with Home Center. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Center Holdings has no effect on the direction of Clean Science i.e., Clean Science and Home Center go up and down completely randomly.

Pair Corralation between Clean Science and Home Center

Assuming the 90 days trading horizon Clean Science is expected to generate 1.85 times less return on investment than Home Center. But when comparing it to its historical volatility, Clean Science co is 1.3 times less risky than Home Center. It trades about 0.06 of its potential returns per unit of risk. Home Center Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  77,800  in Home Center Holdings on September 23, 2024 and sell it today you would earn a total of  4,400  from holding Home Center Holdings or generate 5.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Clean Science co  vs.  Home Center Holdings

Clean Science co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Science co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Home Center Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Center Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Clean Science and Home Center

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

The idea behind Clean Science co and Home Center Holdings 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.