Correlation Between Top Material and Hurum

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

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

Diversification Opportunities for Top Material and Hurum

-0.11

Correlation Coefficient

Top Material  Hurum

Good diversification

The 3 months correlation between Top and Hurum is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Top Material Co and Hurum Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hurum and Top Material 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 Top Material Co are associated (or correlated) with Hurum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hurum has no effect on the direction of Top Material i.e., Top Material and Hurum go up and down completely randomly.

Pair Corralation between Top Material and Hurum

Assuming the 90 days trading horizon Top Material Co is expected to generate 4.38 times more return on investment than Hurum. However, Top Material is 4.38 times more volatile than Hurum Co. It trades about 0.04 of its potential returns per unit of risk. Hurum Co is currently generating about -0.02 per unit of risk. If you would invest  2,615,000  in Top Material Co on December 30, 2024 and sell it today you would earn a total of  90,000  from holding Top Material Co or generate 3.44% return on investment over 90 days.

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

Top Material Co  vs.  Hurum Co

Top Material

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Top Material Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Top Material may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hurum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hurum Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hurum is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Top Material and Hurum

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

The idea behind Top Material Co and Hurum 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.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..