Correlation Between HMM and AFW

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

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

Diversification Opportunities for HMM and AFW

-0.42

Correlation Coefficient

HMM  AFW

Very good diversification

The 3 months correlation between HMM and AFW is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding HMM Co and AFW Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFW Co 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 AFW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFW Co has no effect on the direction of HMM i.e., HMM and AFW go up and down completely randomly.

Pair Corralation between HMM and AFW

Assuming the 90 days trading horizon HMM Co is expected to generate 1.14 times more return on investment than AFW. However, HMM is 1.14 times more volatile than AFW Co. It trades about 0.07 of its potential returns per unit of risk. AFW Co is currently generating about -0.27 per unit of risk. If you would invest  1,680,000  in HMM Co on September 5, 2024 and sell it today you would earn a total of  135,000  from holding HMM Co or generate 8.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

HMM Co  vs.  AFW Co

HMM Co

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HMM Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HMM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AFW Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AFW Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with HMM and AFW

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

The idea behind HMM Co and AFW Co 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.