Correlation Between Hi Trend and UE Furniture

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

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

Diversification Opportunities for Hi Trend and UE Furniture

-0.23

Correlation Coefficient

Hi Trend  UE Furniture

Very good diversification

The 3 months correlation between 688391 and 603600 is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Hi Trend TechCo and UE Furniture Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UE Furniture and Hi Trend 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 Hi Trend TechCo are associated (or correlated) with UE Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UE Furniture has no effect on the direction of Hi Trend i.e., Hi Trend and UE Furniture go up and down completely randomly.

Pair Corralation between Hi Trend and UE Furniture

Assuming the 90 days trading horizon Hi Trend TechCo is expected to under-perform the UE Furniture. In addition to that, Hi Trend is 1.04 times more volatile than UE Furniture Co. It trades about -0.1 of its total potential returns per unit of risk. UE Furniture Co is currently generating about 0.07 per unit of volatility. If you would invest  1,150  in UE Furniture Co on October 21, 2024 and sell it today you would earn a total of  125.00  from holding UE Furniture Co or generate 10.87% return on investment over 90 days.

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

Hi Trend TechCo  vs.  UE Furniture Co

Hi Trend TechCo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hi Trend TechCo 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

UE Furniture

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Hi Trend and UE Furniture

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

The idea behind Hi Trend TechCo and UE Furniture 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.