Correlation Between Daimler Truck and Hydrofarm Holdings

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

By analyzing existing cross correlation between Daimler Truck Holding and Hydrofarm Holdings Group, you can compare the effects of market volatilities on Daimler Truck and Hydrofarm Holdings 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 Daimler Truck with a short position of Hydrofarm Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daimler Truck and Hydrofarm Holdings.

Diversification Opportunities for Daimler Truck and Hydrofarm Holdings

-0.31

Correlation Coefficient

Daimler Truck  Hydrofarm Holdings

Very good diversification

The 3 months correlation between Daimler and Hydrofarm is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Daimler Truck Holding and Hydrofarm Holdings Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hydrofarm Holdings and Daimler Truck 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 Daimler Truck Holding are associated (or correlated) with Hydrofarm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hydrofarm Holdings has no effect on the direction of Daimler Truck i.e., Daimler Truck and Hydrofarm Holdings go up and down completely randomly.

Pair Corralation between Daimler Truck and Hydrofarm Holdings

Assuming the 90 days horizon Daimler Truck is expected to generate 41.63 times less return on investment than Hydrofarm Holdings. But when comparing it to its historical volatility, Daimler Truck Holding is 3.19 times less risky than Hydrofarm Holdings. It trades about 0.02 of its potential returns per unit of risk. Hydrofarm Holdings Group is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  53.00  in Hydrofarm Holdings Group on September 16, 2024 and sell it today you would earn a total of  17.00  from holding Hydrofarm Holdings Group or generate 32.08% return on investment over 90 days.

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

Daimler Truck Holding  vs.  Hydrofarm Holdings Group

Daimler Truck Holding

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daimler Truck Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Daimler Truck showed solid returns over the last few months and may actually be approaching a breakup point.

Hydrofarm Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hydrofarm Holdings Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Hydrofarm Holdings is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Daimler Truck and Hydrofarm Holdings

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

The idea behind Daimler Truck Holding and Hydrofarm Holdings Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.