Correlation Between Blue Label and HomeChoice Investments

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

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

Diversification Opportunities for Blue Label and HomeChoice Investments

-0.05

Correlation Coefficient

Blue Label  HomeChoice Investments

Good diversification

The 3 months correlation between Blue and HomeChoice is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Blue Label Telecoms and HomeChoice Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeChoice Investments and Blue Label 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 Blue Label Telecoms are associated (or correlated) with HomeChoice Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeChoice Investments has no effect on the direction of Blue Label i.e., Blue Label and HomeChoice Investments go up and down completely randomly.

Pair Corralation between Blue Label and HomeChoice Investments

Assuming the 90 days trading horizon Blue Label Telecoms is expected to generate 0.53 times more return on investment than HomeChoice Investments. However, Blue Label Telecoms is 1.87 times less risky than HomeChoice Investments. It trades about 0.19 of its potential returns per unit of risk. HomeChoice Investments is currently generating about -0.07 per unit of risk. If you would invest  48,200  in Blue Label Telecoms on September 14, 2024 and sell it today you would earn a total of  9,800  from holding Blue Label Telecoms or generate 20.33% return on investment over 90 days.

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

Blue Label Telecoms  vs.  HomeChoice Investments

Blue Label Telecoms

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Label Telecoms are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Blue Label exhibited solid returns over the last few months and may actually be approaching a breakup point.

HomeChoice Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeChoice Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Blue Label and HomeChoice Investments

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

The idea behind Blue Label Telecoms and HomeChoice Investments 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.