Correlation Between HP and Clean Earth
Can any of the company-specific risk be diversified away by investing in both HP and Clean Earth 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 HP and Clean Earth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Clean Earth Acquisitions, you can compare the effects of market volatilities on HP and Clean Earth 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 HP with a short position of Clean Earth. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Clean Earth.
Diversification Opportunities for HP and Clean Earth
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between HP and Clean is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Clean Earth Acquisitions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Earth Acquisitions and HP 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 HP Inc are associated (or correlated) with Clean Earth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Earth Acquisitions has no effect on the direction of HP i.e., HP and Clean Earth go up and down completely randomly.
Pair Corralation between HP and Clean Earth
Considering the 90-day investment horizon HP is expected to generate 5.24 times less return on investment than Clean Earth. But when comparing it to its historical volatility, HP Inc is 4.81 times less risky than Clean Earth. It trades about 0.04 of its potential returns per unit of risk. Clean Earth Acquisitions is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 14.00 in Clean Earth Acquisitions on August 30, 2024 and sell it today you would earn a total of 0.00 from holding Clean Earth Acquisitions or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 31.11% |
| Values | Daily Returns |
HP Inc vs. Clean Earth Acquisitions
Performance |
| Timeline |
| HP Inc |
| Clean Earth Acquisitions |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
HP and Clean Earth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Clean Earth
The main advantage of trading using opposite HP and Clean Earth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Clean Earth 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 Clean Earth will offset losses from the drop in Clean Earth's long position.The idea behind HP Inc and Clean Earth Acquisitions 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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