Correlation Between HE Equipment and Stepstone

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

By analyzing existing cross correlation between HE Equipment Services and Stepstone Group, you can compare the effects of market volatilities on HE Equipment and Stepstone 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 HE Equipment with a short position of Stepstone. Check out your portfolio center. Please also check ongoing floating volatility patterns of HE Equipment and Stepstone.

Diversification Opportunities for HE Equipment and Stepstone

0.87

Correlation Coefficient

HE Equipment  Stepstone

Very poor diversification

The 3 months correlation between HEES and Stepstone is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Stepstone Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepstone Group and HE Equipment 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 HE Equipment Services are associated (or correlated) with Stepstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepstone Group has no effect on the direction of HE Equipment i.e., HE Equipment and Stepstone go up and down completely randomly.

Pair Corralation between HE Equipment and Stepstone

Given the investment horizon of 90 days HE Equipment Services is expected to under-perform the Stepstone. In addition to that, HE Equipment is 1.37 times more volatile than Stepstone Group. It trades about -0.16 of its total potential returns per unit of risk. Stepstone Group is currently generating about -0.04 per unit of volatility. If you would invest  6,452  in Stepstone Group on September 19, 2024 and sell it today you would lose (88.00) from holding Stepstone Group or give up 1.36% of portfolio value over 90 days.

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

HE Equipment Services  vs.  Stepstone Group

HE Equipment Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, HE Equipment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Stepstone Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HE Equipment and Stepstone

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

The idea behind HE Equipment Services and Stepstone Group 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.