Correlation Between Strong H and Highwealth Construction

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

By analyzing existing cross correlation between Strong H Machinery and Highwealth Construction Corp, you can compare the effects of market volatilities on Strong H and Highwealth Construction 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 Strong H with a short position of Highwealth Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strong H and Highwealth Construction.

Diversification Opportunities for Strong H and Highwealth Construction

0.22

Correlation Coefficient

Strong H  Highwealth Construction

Modest diversification

The 3 months correlation between Strong and Highwealth is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Strong H Machinery and Highwealth Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highwealth Construction and Strong H 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 Strong H Machinery are associated (or correlated) with Highwealth Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highwealth Construction has no effect on the direction of Strong H i.e., Strong H and Highwealth Construction go up and down completely randomly.

Pair Corralation between Strong H and Highwealth Construction

Assuming the 90 days trading horizon Strong H is expected to generate 2.01 times less return on investment than Highwealth Construction. But when comparing it to its historical volatility, Strong H Machinery is 1.25 times less risky than Highwealth Construction. It trades about 0.03 of its potential returns per unit of risk. Highwealth Construction Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,370  in Highwealth Construction Corp on December 29, 2024 and sell it today you would earn a total of  130.00  from holding Highwealth Construction Corp or generate 2.97% return on investment over 90 days.

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

Strong H Machinery  vs.  Highwealth Construction Corp

Strong H Machinery

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Strong H Machinery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Strong H is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Highwealth Construction

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highwealth Construction Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Highwealth Construction is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Strong H and Highwealth Construction

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

The idea behind Strong H Machinery and Highwealth Construction 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.