Correlation Between Superior Plus and H2O Retailing

Can any of the company-specific risk be diversified away by investing in both Superior Plus and H2O Retailing 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 Superior Plus and H2O Retailing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Superior Plus Corp and H2O Retailing, you can compare the effects of market volatilities on Superior Plus and H2O Retailing 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 Superior Plus with a short position of H2O Retailing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Superior Plus and H2O Retailing.

Diversification Opportunities for Superior Plus and H2O Retailing

-0.3

Correlation Coefficient

Superior Plus  H2O Retailing

Very good diversification

The 3 months correlation between Superior and H2O is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Superior Plus Corp and H2O Retailing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on H2O Retailing and Superior Plus 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 Superior Plus Corp are associated (or correlated) with H2O Retailing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of H2O Retailing has no effect on the direction of Superior Plus i.e., Superior Plus and H2O Retailing go up and down completely randomly.

Pair Corralation between Superior Plus and H2O Retailing

Assuming the 90 days horizon Superior Plus is expected to generate 2.5 times less return on investment than H2O Retailing. In addition to that, Superior Plus is 1.16 times more volatile than H2O Retailing. It trades about 0.01 of its total potential returns per unit of risk. H2O Retailing is currently generating about 0.02 per unit of volatility. If you would invest  1,340  in H2O Retailing on December 21, 2024 and sell it today you would earn a total of  20.00  from holding H2O Retailing or generate 1.49% return on investment over 90 days.

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

Superior Plus Corp  vs.  H2O Retailing

Superior Plus Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Superior Plus Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Superior Plus is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

H2O Retailing

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in H2O Retailing are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, H2O Retailing is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Superior Plus and H2O Retailing

The main advantage of trading using opposite Superior Plus and H2O Retailing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Superior Plus position performs unexpectedly, H2O Retailing 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 H2O Retailing will offset losses from the drop in H2O Retailing's long position.

The idea behind Superior Plus Corp and H2O Retailing 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.