Correlation Between HMM and TS Investment

Can any of the company-specific risk be diversified away by investing in both HMM and TS 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 HMM and TS Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HMM Co and TS Investment Corp, you can compare the effects of market volatilities on HMM and TS 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 HMM with a short position of TS Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of HMM and TS Investment.

Diversification Opportunities for HMM and TS Investment

0.17

Correlation Coefficient

HMM  TS Investment

Average diversification

The 3 months correlation between HMM and 246690 is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding HMM Co and TS Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TS Investment Corp and HMM 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 HMM Co are associated (or correlated) with TS Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TS Investment Corp has no effect on the direction of HMM i.e., HMM and TS Investment go up and down completely randomly.

Pair Corralation between HMM and TS Investment

Assuming the 90 days trading horizon HMM is expected to generate 3.66 times less return on investment than TS Investment. But when comparing it to its historical volatility, HMM Co is 2.3 times less risky than TS Investment. It trades about 0.1 of its potential returns per unit of risk. TS Investment Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  84,656  in TS Investment Corp on December 2, 2024 and sell it today you would earn a total of  50,644  from holding TS Investment Corp or generate 59.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

HMM Co  vs.  TS Investment Corp

HMM Co

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HMM Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HMM sustained solid returns over the last few months and may actually be approaching a breakup point.

TS Investment Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TS Investment Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TS Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HMM and TS Investment

The main advantage of trading using opposite HMM and TS Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HMM position performs unexpectedly, TS 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 TS Investment will offset losses from the drop in TS Investment's long position.

The idea behind HMM Co and TS Investment Corp 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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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.