Correlation Between SNC and HOT

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

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

Diversification Opportunities for SNC and HOT

0.05

Correlation Coefficient

SNC  HOT

Significant diversification

The 3 months correlation between SNC and HOT is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding SNC and HOT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOT and SNC 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 SNC are associated (or correlated) with HOT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOT has no effect on the direction of SNC i.e., SNC and HOT go up and down completely randomly.

Pair Corralation between SNC and HOT

Assuming the 90 days trading horizon SNC is expected to under-perform the HOT. But the crypto coin apears to be less risky and, when comparing its historical volatility, SNC is 1.28 times less risky than HOT. The crypto coin trades about -0.03 of its potential returns per unit of risk. The HOT is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  0.16  in HOT on September 2, 2024 and sell it today you would earn a total of  0.18  from holding HOT or generate 113.15% return on investment over 90 days.

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

SNC  vs.  HOT

SNC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SNC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for SNC shareholders.

HOT

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HOT are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, HOT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SNC and HOT

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

The idea behind SNC and HOT 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.