Correlation Between HP and Crimson Wine
Can any of the company-specific risk be diversified away by investing in both HP and Crimson Wine 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 Crimson Wine into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Crimson Wine, you can compare the effects of market volatilities on HP and Crimson Wine 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 Crimson Wine. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Crimson Wine.
Diversification Opportunities for HP and Crimson Wine
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between HP and Crimson is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Crimson Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crimson Wine 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 Crimson Wine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crimson Wine has no effect on the direction of HP i.e., HP and Crimson Wine go up and down completely randomly.
Pair Corralation between HP and Crimson Wine
Considering the 90-day investment horizon HP Inc is expected to generate 1.06 times more return on investment than Crimson Wine. However, HP is 1.06 times more volatile than Crimson Wine. It trades about 0.06 of its potential returns per unit of risk. Crimson Wine is currently generating about 0.02 per unit of risk. If you would invest 2,669 in HP Inc on August 28, 2024 and sell it today you would earn a total of 1,261 from holding HP Inc or generate 47.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
HP Inc vs. Crimson Wine
Performance |
| Timeline |
| HP Inc |
| Crimson Wine |
HP and Crimson Wine Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Crimson Wine
The main advantage of trading using opposite HP and Crimson Wine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Crimson Wine 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 Crimson Wine will offset losses from the drop in Crimson Wine's long position.The idea behind HP Inc and Crimson Wine 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.| Crimson Wine vs. Pernod Ricard SA | Crimson Wine vs. Naked Wines plc | Crimson Wine vs. Willamette Valley Vineyards | Crimson Wine vs. Brown Forman |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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