Correlation Between EMC2 and HC

Can any of the company-specific risk be diversified away by investing in both EMC2 and HC 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 EMC2 and HC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EMC2 and HC, you can compare the effects of market volatilities on EMC2 and HC 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 EMC2 with a short position of HC. Check out your portfolio center. Please also check ongoing floating volatility patterns of EMC2 and HC.

Diversification Opportunities for EMC2 and HC

0.63

Correlation Coefficient

EMC2  HC

Poor diversification

The 3 months correlation between EMC2 and HC is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding EMC2 and HC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HC and EMC2 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 EMC2 are associated (or correlated) with HC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HC has no effect on the direction of EMC2 i.e., EMC2 and HC go up and down completely randomly.

Pair Corralation between EMC2 and HC

Assuming the 90 days trading horizon EMC2 is expected to generate 83.06 times less return on investment than HC. But when comparing it to its historical volatility, EMC2 is 13.95 times less risky than HC. It trades about 0.02 of its potential returns per unit of risk. HC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2.38  in HC on December 27, 2024 and sell it today you would lose (0.18) from holding HC or give up 7.56% of portfolio value over 90 days.

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

EMC2  vs.  HC

EMC2

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EMC2 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, EMC2 is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

HC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, HC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EMC2 and HC

The main advantage of trading using opposite EMC2 and HC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMC2 position performs unexpectedly, HC 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 HC will offset losses from the drop in HC's long position.

The idea behind EMC2 and HC 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.