Correlation Between Cox ABG and Home Capital

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

By analyzing existing cross correlation between Cox ABG Group and Home Capital Rentals, you can compare the effects of market volatilities on Cox ABG and Home Capital 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 Cox ABG with a short position of Home Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cox ABG and Home Capital.

Diversification Opportunities for Cox ABG and Home Capital

0.21

Correlation Coefficient

Cox ABG  Home Capital

Modest diversification

The 3 months correlation between Cox and Home is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Cox ABG Group and Home Capital Rentals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Capital Rentals and Cox ABG 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 Cox ABG Group are associated (or correlated) with Home Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Capital Rentals has no effect on the direction of Cox ABG i.e., Cox ABG and Home Capital go up and down completely randomly.

Pair Corralation between Cox ABG and Home Capital

Assuming the 90 days trading horizon Cox ABG Group is expected to generate 1.69 times more return on investment than Home Capital. However, Cox ABG is 1.69 times more volatile than Home Capital Rentals. It trades about -0.07 of its potential returns per unit of risk. Home Capital Rentals is currently generating about -0.13 per unit of risk. If you would invest  960.00  in Cox ABG Group on December 20, 2024 and sell it today you would lose (70.00) from holding Cox ABG Group or give up 7.29% of portfolio value over 90 days.

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

Cox ABG Group  vs.  Home Capital Rentals

Cox ABG Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cox ABG Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Home Capital Rentals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Capital Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Cox ABG and Home Capital

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

The idea behind Cox ABG Group and Home Capital Rentals 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 Transaction History module to view history of all your transactions and understand their impact on performance.