Correlation Between HP and Small Cap
Can any of the company-specific risk be diversified away by investing in both HP and Small Cap 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 Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Small Cap Special, you can compare the effects of market volatilities on HP and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Small Cap.
Diversification Opportunities for HP and Small Cap
Poor diversification
The 3 months correlation between HP and Small is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Small Cap Special in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Special 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Special has no effect on the direction of HP i.e., HP and Small Cap go up and down completely randomly.
Pair Corralation between HP and Small Cap
Considering the 90-day investment horizon HP Inc is expected to generate 1.52 times more return on investment than Small Cap. However, HP is 1.52 times more volatile than Small Cap Special. It trades about 0.04 of its potential returns per unit of risk. Small Cap Special is currently generating about 0.05 per unit of risk. If you would invest 2,764 in HP Inc on August 23, 2024 and sell it today you would earn a total of 1,027 from holding HP Inc or generate 37.16% 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. Small Cap Special
Performance |
| Timeline |
| HP Inc |
| Small Cap Special |
HP and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Small Cap
The main advantage of trading using opposite HP and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.The idea behind HP Inc and Small Cap Special 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.| Small Cap vs. Artisan High Income | Small Cap vs. Fa 529 Aggressive | Small Cap vs. Ab High Income | Small Cap vs. California High Yield Municipal |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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