Correlation Between Apple and Headwater Exploration

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

By analyzing existing cross correlation between Apple Inc CDR and Headwater Exploration, you can compare the effects of market volatilities on Apple and Headwater Exploration 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 Apple with a short position of Headwater Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Headwater Exploration.

Diversification Opportunities for Apple and Headwater Exploration

-0.48

Correlation Coefficient

Apple  Headwater Exploration

Very good diversification

The 3 months correlation between Apple and Headwater is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc CDR and Headwater Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Headwater Exploration and Apple 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 Apple Inc CDR are associated (or correlated) with Headwater Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Headwater Exploration has no effect on the direction of Apple i.e., Apple and Headwater Exploration go up and down completely randomly.

Pair Corralation between Apple and Headwater Exploration

Assuming the 90 days trading horizon Apple Inc CDR is expected to generate 0.75 times more return on investment than Headwater Exploration. However, Apple Inc CDR is 1.33 times less risky than Headwater Exploration. It trades about 0.09 of its potential returns per unit of risk. Headwater Exploration is currently generating about 0.03 per unit of risk. If you would invest  1,968  in Apple Inc CDR on October 9, 2024 and sell it today you would earn a total of  1,617  from holding Apple Inc CDR or generate 82.16% return on investment over 90 days.

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

Apple Inc CDR  vs.  Headwater Exploration

Apple Inc CDR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc CDR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Apple may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Headwater Exploration

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Headwater Exploration are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Headwater Exploration is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Apple and Headwater Exploration

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

The idea behind Apple Inc CDR and Headwater Exploration 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.