Correlation Between Hood River and New Economy

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

By analyzing existing cross correlation between Hood River New and New Economy Fund, you can compare the effects of market volatilities on Hood River and New Economy 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 Hood River with a short position of New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hood River and New Economy.

Diversification Opportunities for Hood River and New Economy

0.87

Correlation Coefficient

Hood River  New Economy

Very poor diversification

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

Pair Corralation between Hood River and New Economy

Assuming the 90 days horizon Hood River New is expected to generate 1.39 times more return on investment than New Economy. However, Hood River is 1.39 times more volatile than New Economy Fund. It trades about 0.35 of its potential returns per unit of risk. New Economy Fund is currently generating about 0.15 per unit of risk. If you would invest  1,092  in Hood River New on September 3, 2024 and sell it today you would earn a total of  328.00  from holding Hood River New or generate 30.04% return on investment over 90 days.

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

Hood River New  vs.  New Economy Fund

Hood River New

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Hood River New are ranked lower than 27 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Hood River showed solid returns over the last few months and may actually be approaching a breakup point.

New Economy Fund

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Economy Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, New Economy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hood River and New Economy

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

The idea behind Hood River New and New Economy 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.

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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.