Correlation Between First Advantage and Huron Consulting

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

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

Diversification Opportunities for First Advantage and Huron Consulting

-0.22

Correlation Coefficient

First Advantage  Huron Consulting

Very good diversification

The 3 months correlation between First and Huron is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding First Advantage Corp and Huron Consulting Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huron Consulting and First Advantage 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 First Advantage Corp are associated (or correlated) with Huron Consulting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huron Consulting has no effect on the direction of First Advantage i.e., First Advantage and Huron Consulting go up and down completely randomly.

Pair Corralation between First Advantage and Huron Consulting

Allowing for the 90-day total investment horizon First Advantage Corp is expected to under-perform the Huron Consulting. In addition to that, First Advantage is 1.43 times more volatile than Huron Consulting Group. It trades about -0.22 of its total potential returns per unit of risk. Huron Consulting Group is currently generating about -0.13 per unit of volatility. If you would invest  12,560  in Huron Consulting Group on September 26, 2024 and sell it today you would lose (336.00) from holding Huron Consulting Group or give up 2.68% of portfolio value over 90 days.

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

First Advantage Corp  vs.  Huron Consulting Group

First Advantage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Advantage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Advantage is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Huron Consulting

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Huron Consulting Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Huron Consulting displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Advantage and Huron Consulting

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

The idea behind First Advantage Corp and Huron Consulting 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.