Correlation Between HP and LEGGETT

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Can any of the company-specific risk be diversified away by investing in both HP and LEGGETT 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 LEGGETT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and LEGGETT PLATT INC, you can compare the effects of market volatilities on HP and LEGGETT 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 LEGGETT. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and LEGGETT.

Diversification Opportunities for HP and LEGGETT

-0.66
  Correlation Coefficient
 HP

Excellent diversification

The 3 months correlation between HP and LEGGETT is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and LEGGETT PLATT INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEGGETT PLATT 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 LEGGETT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEGGETT PLATT INC has no effect on the direction of HP i.e., HP and LEGGETT go up and down completely randomly.

Pair Corralation between HP and LEGGETT

Considering the 90-day investment horizon HP Inc is expected to generate 2.87 times more return on investment than LEGGETT. However, HP is 2.87 times more volatile than LEGGETT PLATT INC. It trades about 0.02 of its potential returns per unit of risk. LEGGETT PLATT INC is currently generating about 0.03 per unit of risk. If you would invest  3,476  in HP Inc on August 31, 2024 and sell it today you would earn a total of  67.00  from holding HP Inc or generate 1.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy98.43%
ValuesDaily Returns

HP Inc  vs.  LEGGETT PLATT INC

 Performance 
       Timeline  
HP Inc 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days HP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, HP is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.
LEGGETT PLATT INC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days LEGGETT PLATT INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LEGGETT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HP and LEGGETT Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HP and LEGGETT

The main advantage of trading using opposite HP and LEGGETT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, LEGGETT 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 LEGGETT will offset losses from the drop in LEGGETT's long position.
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The idea behind HP Inc and LEGGETT PLATT 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.
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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