Correlation Between HALI34 and S1NP34

Can any of the company-specific risk be diversified away by investing in both HALI34 and S1NP34 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 HALI34 and S1NP34 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HALI34 and S1NP34, you can compare the effects of market volatilities on HALI34 and S1NP34 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 HALI34 with a short position of S1NP34. Check out your portfolio center. Please also check ongoing floating volatility patterns of HALI34 and S1NP34.

Diversification Opportunities for HALI34 and S1NP34

0.82

Correlation Coefficient

HALI34  S1NP34

Very poor diversification

The 3 months correlation between HALI34 and S1NP34 is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding HALI34 and S1NP34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on S1NP34 and HALI34 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 HALI34 are associated (or correlated) with S1NP34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of S1NP34 has no effect on the direction of HALI34 i.e., HALI34 and S1NP34 go up and down completely randomly.

Pair Corralation between HALI34 and S1NP34

Assuming the 90 days trading horizon HALI34 is expected to under-perform the S1NP34. In addition to that, HALI34 is 1.06 times more volatile than S1NP34. It trades about -0.01 of its total potential returns per unit of risk. S1NP34 is currently generating about 0.06 per unit of volatility. If you would invest  43,620  in S1NP34 on September 22, 2024 and sell it today you would earn a total of  31,771  from holding S1NP34 or generate 72.84% return on investment over 90 days.

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

HALI34  vs.  S1NP34

HALI34

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HALI34 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, HALI34 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

S1NP34

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in S1NP34 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, S1NP34 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HALI34 and S1NP34

The main advantage of trading using opposite HALI34 and S1NP34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HALI34 position performs unexpectedly, S1NP34 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 S1NP34 will offset losses from the drop in S1NP34's long position.

The idea behind HALI34 and S1NP34 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.