Correlation Between JAMES HARDIE and BANK HANDLOWY

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

By analyzing existing cross correlation between JAMES HARDIE INDUSTADR1 and BANK HANDLOWY, you can compare the effects of market volatilities on JAMES HARDIE and BANK HANDLOWY 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 JAMES HARDIE with a short position of BANK HANDLOWY. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAMES HARDIE and BANK HANDLOWY.

Diversification Opportunities for JAMES HARDIE and BANK HANDLOWY

0.62

Correlation Coefficient

JAMES HARDIE  BANK HANDLOWY

Poor diversification

The 3 months correlation between JAMES and BANK is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding JAMES HARDIE INDUSTADR1 and BANK HANDLOWY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANK HANDLOWY and JAMES HARDIE 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 JAMES HARDIE INDUSTADR1 are associated (or correlated) with BANK HANDLOWY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANK HANDLOWY has no effect on the direction of JAMES HARDIE i.e., JAMES HARDIE and BANK HANDLOWY go up and down completely randomly.

Pair Corralation between JAMES HARDIE and BANK HANDLOWY

Assuming the 90 days trading horizon JAMES HARDIE INDUSTADR1 is expected to generate 10.56 times more return on investment than BANK HANDLOWY. However, JAMES HARDIE is 10.56 times more volatile than BANK HANDLOWY. It trades about 0.2 of its potential returns per unit of risk. BANK HANDLOWY is currently generating about 0.21 per unit of risk. If you would invest  2,300  in JAMES HARDIE INDUSTADR1 on September 19, 2024 and sell it today you would earn a total of  840.00  from holding JAMES HARDIE INDUSTADR1 or generate 36.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

JAMES HARDIE INDUSTADR1  vs.  BANK HANDLOWY

JAMES HARDIE INDUSTADR1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAMES HARDIE INDUSTADR1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JAMES HARDIE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

BANK HANDLOWY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANK HANDLOWY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BANK HANDLOWY is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with JAMES HARDIE and BANK HANDLOWY

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

The idea behind JAMES HARDIE INDUSTADR1 and BANK HANDLOWY 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.