Correlation Between Haier Smart and FirstGroup Plc

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

By analyzing existing cross correlation between Haier Smart Home and FirstGroup plc, you can compare the effects of market volatilities on Haier Smart and FirstGroup Plc 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 Haier Smart with a short position of FirstGroup Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Haier Smart and FirstGroup Plc.

Diversification Opportunities for Haier Smart and FirstGroup Plc

0.33

Correlation Coefficient

Haier Smart  FirstGroup Plc

Weak diversification

The 3 months correlation between Haier and FirstGroup is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Haier Smart Home and FirstGroup plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstGroup plc and Haier Smart 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 Haier Smart Home are associated (or correlated) with FirstGroup Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstGroup plc has no effect on the direction of Haier Smart i.e., Haier Smart and FirstGroup Plc go up and down completely randomly.

Pair Corralation between Haier Smart and FirstGroup Plc

Assuming the 90 days trading horizon Haier Smart Home is expected to generate 0.92 times more return on investment than FirstGroup Plc. However, Haier Smart Home is 1.09 times less risky than FirstGroup Plc. It trades about -0.06 of its potential returns per unit of risk. FirstGroup plc is currently generating about -0.14 per unit of risk. If you would invest  180.00  in Haier Smart Home on October 24, 2024 and sell it today you would lose (3.00) from holding Haier Smart Home or give up 1.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

Haier Smart Home  vs.  FirstGroup plc

Haier Smart Home

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Haier Smart Home are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Haier Smart is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

FirstGroup plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FirstGroup plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, FirstGroup Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Haier Smart and FirstGroup Plc

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

The idea behind Haier Smart Home and FirstGroup plc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.