Correlation Between HP and Clorox
Can any of the company-specific risk be diversified away by investing in both HP and Clorox 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 Clorox into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and The Clorox, you can compare the effects of market volatilities on HP and Clorox 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 Clorox. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Clorox.
Diversification Opportunities for HP and Clorox
Significant diversification
The 3 months correlation between HP and Clorox is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and The Clorox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clorox 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 Clorox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clorox has no effect on the direction of HP i.e., HP and Clorox go up and down completely randomly.
Pair Corralation between HP and Clorox
Considering the 90-day investment horizon HP Inc is expected to under-perform the Clorox. In addition to that, HP is 1.68 times more volatile than The Clorox. It trades about -0.19 of its total potential returns per unit of risk. The Clorox is currently generating about -0.31 per unit of volatility. If you would invest 16,740 in The Clorox on October 9, 2024 and sell it today you would lose (981.00) from holding The Clorox or give up 5.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
HP Inc vs. The Clorox
Performance |
| Timeline |
| HP Inc |
| Clorox |
HP and Clorox Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Clorox
The main advantage of trading using opposite HP and Clorox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Clorox 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 Clorox will offset losses from the drop in Clorox's long position.The idea behind HP Inc and The Clorox 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.| Clorox vs. Colgate Palmolive | Clorox vs. Procter Gamble | Clorox vs. Unilever PLC ADR | Clorox vs. Church Dwight |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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