Correlation Between HP and Small Company

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

By analyzing existing cross correlation between HP Inc and Small Pany Fund, you can compare the effects of market volatilities on HP and Small Company 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 HP with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Small Company.

Diversification Opportunities for HP and Small Company

0.67

Correlation Coefficient

HP  Small Company

Poor diversification

The 3 months correlation between HP and Small is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund and HP 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 HP Inc are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of HP i.e., HP and Small Company go up and down completely randomly.

Pair Corralation between HP and Small Company

Considering the 90-day investment horizon HP is expected to generate 3.67 times less return on investment than Small Company. In addition to that, HP is 1.74 times more volatile than Small Pany Fund. It trades about 0.02 of its total potential returns per unit of risk. Small Pany Fund is currently generating about 0.11 per unit of volatility. If you would invest  3,202  in Small Pany Fund on September 3, 2024 and sell it today you would earn a total of  280.00  from holding Small Pany Fund or generate 8.74% return on investment over 90 days.

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

HP Inc  vs.  Small Pany Fund

HP Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, HP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Small Pany Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HP and Small Company

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

The idea behind HP Inc and Small Pany Fund 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.

Check out your portfolio center.

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.