Correlation Between HP and Nasdaq
Can any of the company-specific risk be diversified away by investing in both HP and Nasdaq 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 Nasdaq into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Nasdaq Inc, you can compare the effects of market volatilities on HP and Nasdaq 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 Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Nasdaq.
Diversification Opportunities for HP and Nasdaq
Very weak diversification
The 3 months correlation between HP and Nasdaq is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Nasdaq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq Inc 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 Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq Inc has no effect on the direction of HP i.e., HP and Nasdaq go up and down completely randomly.
Pair Corralation between HP and Nasdaq
Considering the 90-day investment horizon HP is expected to generate 1.52 times less return on investment than Nasdaq. In addition to that, HP is 1.69 times more volatile than Nasdaq Inc. It trades about 0.06 of its total potential returns per unit of risk. Nasdaq Inc is currently generating about 0.17 per unit of volatility. If you would invest 4,997 in Nasdaq Inc on September 1, 2024 and sell it today you would earn a total of 3,302 from holding Nasdaq Inc or generate 66.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
HP Inc vs. Nasdaq Inc
Performance |
| Timeline |
| HP Inc |
| Nasdaq Inc |
HP and Nasdaq Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Nasdaq
The main advantage of trading using opposite HP and Nasdaq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Nasdaq 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 Nasdaq will offset losses from the drop in Nasdaq's long position.The idea behind HP Inc and Nasdaq Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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