Correlation Between Freedom Holding and PACCAR

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

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

Diversification Opportunities for Freedom Holding and PACCAR

0.72

Correlation Coefficient

Freedom Holding  PACCAR

Poor diversification

The 3 months correlation between Freedom and PACCAR is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Holding Corp and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc and Freedom Holding 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 Freedom Holding Corp are associated (or correlated) with PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Freedom Holding i.e., Freedom Holding and PACCAR go up and down completely randomly.

Pair Corralation between Freedom Holding and PACCAR

Given the investment horizon of 90 days Freedom Holding Corp is expected to generate 1.02 times more return on investment than PACCAR. However, Freedom Holding is 1.02 times more volatile than PACCAR Inc. It trades about 0.28 of its potential returns per unit of risk. PACCAR Inc is currently generating about 0.09 per unit of risk. If you would invest  9,476  in Freedom Holding Corp on September 28, 2024 and sell it today you would earn a total of  3,539  from holding Freedom Holding Corp or generate 37.35% return on investment over 90 days.

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

Freedom Holding Corp  vs.  PACCAR Inc

Freedom Holding Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Holding Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Freedom Holding exhibited solid returns over the last few months and may actually be approaching a breakup point.

PACCAR Inc

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Freedom Holding and PACCAR

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

The idea behind Freedom Holding Corp and PACCAR Inc 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.