Correlation Between Herald Investment and Smithson Investment
Can any of the company-specific risk be diversified away by investing in both Herald Investment and Smithson Investment 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 Herald Investment and Smithson Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Herald Investment Trust and Smithson Investment Trust, you can compare the effects of market volatilities on Herald Investment and Smithson Investment 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 Herald Investment with a short position of Smithson Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Herald Investment and Smithson Investment.
Diversification Opportunities for Herald Investment and Smithson Investment
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Herald and Smithson is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Herald Investment Trust and Smithson Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smithson Investment Trust and Herald Investment 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 Herald Investment Trust are associated (or correlated) with Smithson Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smithson Investment Trust has no effect on the direction of Herald Investment i.e., Herald Investment and Smithson Investment go up and down completely randomly.
Pair Corralation between Herald Investment and Smithson Investment
Assuming the 90 days trading horizon Herald Investment Trust is expected to generate 1.22 times more return on investment than Smithson Investment. However, Herald Investment is 1.22 times more volatile than Smithson Investment Trust. It trades about 0.42 of its potential returns per unit of risk. Smithson Investment Trust is currently generating about 0.25 per unit of risk. If you would invest 209,000 in Herald Investment Trust on August 30, 2024 and sell it today you would earn a total of 24,500 from holding Herald Investment Trust or generate 11.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Herald Investment Trust vs. Smithson Investment Trust
Performance |
| Timeline |
| Herald Investment Trust |
| Smithson Investment Trust |
Herald Investment and Smithson Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Herald Investment and Smithson Investment
The main advantage of trading using opposite Herald Investment and Smithson Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Herald Investment position performs unexpectedly, Smithson Investment 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 Smithson Investment will offset losses from the drop in Smithson Investment's long position.| Herald Investment vs. Samsung Electronics Co | Herald Investment vs. Samsung Electronics Co | Herald Investment vs. Hyundai Motor | Herald Investment vs. Toyota Motor Corp |
| Smithson Investment vs. Samsung Electronics Co | Smithson Investment vs. Samsung Electronics Co | Smithson Investment vs. Hyundai Motor | Smithson Investment vs. Toyota Motor Corp |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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