Correlation Between HC and NAV

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

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

Diversification Opportunities for HC and NAV

-0.38

Correlation Coefficient

HC  NAV

Very good diversification

The 3 months correlation between HC and NAV is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding HC and NAV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAV and HC 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 HC are associated (or correlated) with NAV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAV has no effect on the direction of HC i.e., HC and NAV go up and down completely randomly.

Pair Corralation between HC and NAV

Assuming the 90 days horizon HC is expected to generate 5.02 times more return on investment than NAV. However, HC is 5.02 times more volatile than NAV. It trades about 0.09 of its potential returns per unit of risk. NAV is currently generating about 0.02 per unit of risk. 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

HC  vs.  NAV

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.

NAV

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NAV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NAV may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with HC and NAV

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

The idea behind HC and NAV 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.