Correlation Between HP and International Digital

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

By analyzing existing cross correlation between HP Inc and International Digital Holding, you can compare the effects of market volatilities on HP and International Digital 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 International Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and International Digital.

Diversification Opportunities for HP and International Digital

-0.59

Correlation Coefficient

HP  International Digital

Excellent diversification

The 3 months correlation between HP and International is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and International Digital Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Digital 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 International Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Digital has no effect on the direction of HP i.e., HP and International Digital go up and down completely randomly.

Pair Corralation between HP and International Digital

Considering the 90-day investment horizon HP is expected to generate 87.81 times less return on investment than International Digital. But when comparing it to its historical volatility, HP Inc is 21.06 times less risky than International Digital. It trades about 0.03 of its potential returns per unit of risk. International Digital Holding is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  12.00  in International Digital Holding on September 16, 2024 and sell it today you would lose (2.20) from holding International Digital Holding or give up 18.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

HP Inc  vs.  International Digital Holding

HP Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 2 (%) 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 recent stock price agitation, may contribute to short-term losses for the retail investors.

International Digital

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Digital Holding are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, International Digital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HP and International Digital

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

The idea behind HP Inc and International Digital Holding 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 Global Correlations module to find global opportunities by holding instruments from different markets.