Correlation Between SP Systems and HS Valve

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

By analyzing existing cross correlation between SP Systems CoLtd and HS Valve Co, you can compare the effects of market volatilities on SP Systems and HS Valve 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 SP Systems with a short position of HS Valve. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP Systems and HS Valve.

Diversification Opportunities for SP Systems and HS Valve

0.75

Correlation Coefficient

SP Systems  HS Valve

Poor diversification

The 3 months correlation between 317830 and 039610 is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding SP Systems CoLtd and HS Valve Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HS Valve and SP Systems 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 SP Systems CoLtd are associated (or correlated) with HS Valve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HS Valve has no effect on the direction of SP Systems i.e., SP Systems and HS Valve go up and down completely randomly.

Pair Corralation between SP Systems and HS Valve

Assuming the 90 days trading horizon SP Systems CoLtd is expected to generate 0.54 times more return on investment than HS Valve. However, SP Systems CoLtd is 1.84 times less risky than HS Valve. It trades about -0.13 of its potential returns per unit of risk. HS Valve Co is currently generating about -0.13 per unit of risk. If you would invest  548,000  in SP Systems CoLtd on September 13, 2024 and sell it today you would lose (128,500) from holding SP Systems CoLtd or give up 23.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

SP Systems CoLtd  vs.  HS Valve Co

SP Systems CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP Systems CoLtd 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.

HS Valve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HS Valve Co 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 SP Systems and HS Valve

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

The idea behind SP Systems CoLtd and HS Valve Co 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.