Correlation Between Maple and Harmony

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

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

Diversification Opportunities for Maple and Harmony

0.26

Correlation Coefficient

Maple  Harmony

Modest diversification

The 3 months correlation between Maple and Harmony is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Maple and Harmony in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harmony and Maple 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 Maple are associated (or correlated) with Harmony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harmony has no effect on the direction of Maple i.e., Maple and Harmony go up and down completely randomly.

Pair Corralation between Maple and Harmony

Assuming the 90 days trading horizon Maple is expected to generate 2.41 times less return on investment than Harmony. In addition to that, Maple is 1.26 times more volatile than Harmony. It trades about 0.09 of its total potential returns per unit of risk. Harmony is currently generating about 0.27 per unit of volatility. If you would invest  1.08  in Harmony on September 2, 2024 and sell it today you would earn a total of  1.77  from holding Harmony or generate 163.89% return on investment over 90 days.

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

Maple  vs.  Harmony

Maple

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Maple are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Maple exhibited solid returns over the last few months and may actually be approaching a breakup point.

Harmony

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Harmony are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Harmony exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Maple and Harmony

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

The idea behind Maple and Harmony 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.