Correlation Between HP and Health Care
Can any of the company-specific risk be diversified away by investing in both HP and Health Care 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 Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Health Care Select, you can compare the effects of market volatilities on HP and Health Care 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 Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Health Care.
Diversification Opportunities for HP and Health Care
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between HP and Health is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of HP i.e., HP and Health Care go up and down completely randomly.
Pair Corralation between HP and Health Care
Considering the 90-day investment horizon HP Inc is expected to generate 1.32 times more return on investment than Health Care. However, HP is 1.32 times more volatile than Health Care Select. It trades about 0.15 of its potential returns per unit of risk. Health Care Select is currently generating about 0.18 per unit of risk. If you would invest 3,251 in HP Inc on November 18, 2024 and sell it today you would earn a total of 113.00 from holding HP Inc or generate 3.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
HP Inc vs. Health Care Select
Performance |
| Timeline |
| HP Inc |
| Health Care Select |
HP and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Health Care
The main advantage of trading using opposite HP and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Health Care 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 Health Care will offset losses from the drop in Health Care's long position.The idea behind HP Inc and Health Care Select 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.| Health Care vs. Consumer Staples Select | Health Care vs. Industrial Select Sector | Health Care vs. Consumer Discretionary Select | Health Care vs. Utilities Select Sector |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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