Correlation Between Diamond Fields and HPQ Silicon

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

By analyzing existing cross correlation between Diamond Fields Resources and HPQ Silicon Resources, you can compare the effects of market volatilities on Diamond Fields and HPQ Silicon 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 Diamond Fields with a short position of HPQ Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Fields and HPQ Silicon.

Diversification Opportunities for Diamond Fields and HPQ Silicon

-0.21

Correlation Coefficient

Diamond Fields  HPQ Silicon

Very good diversification

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

Pair Corralation between Diamond Fields and HPQ Silicon

Assuming the 90 days horizon Diamond Fields Resources is expected to generate 2.78 times more return on investment than HPQ Silicon. However, Diamond Fields is 2.78 times more volatile than HPQ Silicon Resources. It trades about 0.08 of its potential returns per unit of risk. HPQ Silicon Resources is currently generating about -0.01 per unit of risk. If you would invest  2.00  in Diamond Fields Resources on December 29, 2024 and sell it today you would earn a total of  0.50  from holding Diamond Fields Resources or generate 25.0% return on investment over 90 days.

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

Diamond Fields Resources  vs.  HPQ Silicon Resources

Diamond Fields Resources

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Fields Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Diamond Fields showed solid returns over the last few months and may actually be approaching a breakup point.

HPQ Silicon Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days HPQ Silicon Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, HPQ Silicon is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Diamond Fields and HPQ Silicon

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

The idea behind Diamond Fields Resources and HPQ Silicon Resources 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.