Correlation Between ICD and HuMC

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

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

Diversification Opportunities for ICD and HuMC

0.92

Correlation Coefficient

ICD  HuMC

Almost no diversification

The 3 months correlation between ICD and HuMC is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding ICD Co and HuMC Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HuMC and ICD 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 ICD Co are associated (or correlated) with HuMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HuMC has no effect on the direction of ICD i.e., ICD and HuMC go up and down completely randomly.

Pair Corralation between ICD and HuMC

Assuming the 90 days trading horizon ICD Co is expected to under-perform the HuMC. In addition to that, ICD is 2.91 times more volatile than HuMC Co. It trades about -0.14 of its total potential returns per unit of risk. HuMC Co is currently generating about -0.15 per unit of volatility. If you would invest  107,300  in HuMC Co on August 31, 2024 and sell it today you would lose (7,900) from holding HuMC Co or give up 7.36% of portfolio value over 90 days.

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

ICD Co  vs.  HuMC Co

ICD Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ICD 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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

HuMC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HuMC Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with ICD and HuMC

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

The idea behind ICD Co and HuMC 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.