Correlation Between Coty and HCM Acquisition

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

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

Diversification Opportunities for Coty and HCM Acquisition

-0.24

Correlation Coefficient

Coty  HCM Acquisition

Very good diversification

The 3 months correlation between Coty and HCM is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Coty Inc and HCM Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCM Acquisition Corp and Coty 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 Coty Inc are associated (or correlated) with HCM Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCM Acquisition Corp has no effect on the direction of Coty i.e., Coty and HCM Acquisition go up and down completely randomly.

Pair Corralation between Coty and HCM Acquisition

Given the investment horizon of 90 days Coty is expected to generate 8.33 times less return on investment than HCM Acquisition. In addition to that, Coty is 5.58 times more volatile than HCM Acquisition Corp. It trades about 0.0 of its total potential returns per unit of risk. HCM Acquisition Corp is currently generating about 0.1 per unit of volatility. If you would invest  1,023  in HCM Acquisition Corp on September 4, 2024 and sell it today you would earn a total of  54.00  from holding HCM Acquisition Corp or generate 5.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	30.3%
Values	Daily Returns

Coty Inc  vs.  HCM Acquisition Corp

Coty Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coty Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

HCM Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HCM Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, HCM Acquisition is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Coty and HCM Acquisition

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

The idea behind Coty Inc and HCM Acquisition 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.