Correlation Between Gas and Highstreet
Can any of the company-specific risk be diversified away by investing in both Gas and Highstreet 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 Gas and Highstreet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gas and Highstreet, you can compare the effects of market volatilities on Gas and Highstreet 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 Gas with a short position of Highstreet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gas and Highstreet.
Diversification Opportunities for Gas and Highstreet
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Gas and Highstreet is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Gas and Highstreet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highstreet and Gas 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 Gas are associated (or correlated) with Highstreet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highstreet has no effect on the direction of Gas i.e., Gas and Highstreet go up and down completely randomly.
Pair Corralation between Gas and Highstreet
Assuming the 90 days trading horizon Gas is expected to generate 1.25 times more return on investment than Highstreet. However, Gas is 1.25 times more volatile than Highstreet. It trades about 0.32 of its potential returns per unit of risk. Highstreet is currently generating about 0.2 per unit of risk. If you would invest 405.00 in Gas on August 27, 2024 and sell it today you would earn a total of 182.00 from holding Gas or generate 44.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gas vs. Highstreet
Performance |
| Timeline |
| Gas |
| Highstreet |
Gas and Highstreet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gas and Highstreet
The main advantage of trading using opposite Gas and Highstreet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gas position performs unexpectedly, Highstreet 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 Highstreet will offset losses from the drop in Highstreet's long position.The idea behind Gas and Highstreet 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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