Correlation Between HPB and TRON
Can any of the company-specific risk be diversified away by investing in both HPB and TRON 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 HPB and TRON into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HPB and TRON, you can compare the effects of market volatilities on HPB and TRON 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 HPB with a short position of TRON. Check out your portfolio center. Please also check ongoing floating volatility patterns of HPB and TRON.
Diversification Opportunities for HPB and TRON
Very weak diversification
The 3 months correlation between HPB and TRON is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding HPB and TRON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRON and HPB 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 HPB are associated (or correlated) with TRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRON has no effect on the direction of HPB i.e., HPB and TRON go up and down completely randomly.
Pair Corralation between HPB and TRON
Assuming the 90 days trading horizon HPB is expected to under-perform the TRON. In addition to that, HPB is 1.05 times more volatile than TRON. It trades about -0.07 of its total potential returns per unit of risk. TRON is currently generating about 0.16 per unit of volatility. If you would invest 17.00 in TRON on August 30, 2024 and sell it today you would earn a total of 3.00 from holding TRON or generate 17.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
HPB vs. TRON
Performance |
| Timeline |
| HPB |
| TRON |
HPB and TRON Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HPB and TRON
The main advantage of trading using opposite HPB and TRON positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HPB position performs unexpectedly, TRON 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 TRON will offset losses from the drop in TRON's long position.The idea behind HPB and TRON 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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