Correlation Between HP and First Solar
Can any of the company-specific risk be diversified away by investing in both HP and First Solar 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 First Solar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and First Solar, you can compare the effects of market volatilities on HP and First Solar 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 First Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and First Solar.
Diversification Opportunities for HP and First Solar
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between HP and First is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar 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 First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of HP i.e., HP and First Solar go up and down completely randomly.
Pair Corralation between HP and First Solar
Considering the 90-day investment horizon HP is expected to generate 1.44 times less return on investment than First Solar. But when comparing it to its historical volatility, HP Inc is 1.84 times less risky than First Solar. It trades about 0.04 of its potential returns per unit of risk. First Solar is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 15,096 in First Solar on August 30, 2024 and sell it today you would earn a total of 4,161 from holding First Solar or generate 27.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
HP Inc vs. First Solar
Performance |
| Timeline |
| HP Inc |
| First Solar |
HP and First Solar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and First Solar
The main advantage of trading using opposite HP and First Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, First Solar 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 First Solar will offset losses from the drop in First Solar's long position.The idea behind HP Inc and First Solar 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.| First Solar vs. Enphase Energy | First Solar vs. Sunrun Inc | First Solar vs. Canadian Solar | First Solar vs. SolarEdge Technologies |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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