Correlation Between Hufvudstaden and FastPartner

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

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

Diversification Opportunities for Hufvudstaden and FastPartner

0.85

Correlation Coefficient

Hufvudstaden  FastPartner

Very poor diversification

The 3 months correlation between Hufvudstaden and FastPartner is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Hufvudstaden AB and FastPartner AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FastPartner AB and Hufvudstaden 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 Hufvudstaden AB are associated (or correlated) with FastPartner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FastPartner AB has no effect on the direction of Hufvudstaden i.e., Hufvudstaden and FastPartner go up and down completely randomly.

Pair Corralation between Hufvudstaden and FastPartner

Assuming the 90 days trading horizon Hufvudstaden is expected to generate 16.06 times less return on investment than FastPartner. But when comparing it to its historical volatility, Hufvudstaden AB is 1.67 times less risky than FastPartner. It trades about 0.01 of its potential returns per unit of risk. FastPartner AB is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,987  in FastPartner AB on September 9, 2024 and sell it today you would earn a total of  2,913  from holding FastPartner AB or generate 73.06% return on investment over 90 days.

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

Hufvudstaden AB  vs.  FastPartner AB

Hufvudstaden AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hufvudstaden AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

FastPartner AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FastPartner AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, FastPartner is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hufvudstaden and FastPartner

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

The idea behind Hufvudstaden AB and FastPartner AB 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.