Correlation Between Hardide PLC and London Security

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

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

Diversification Opportunities for Hardide PLC and London Security

0.49

Correlation Coefficient

Hardide PLC  London Security

Very weak diversification

The 3 months correlation between Hardide and London is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Hardide PLC and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security Plc and Hardide PLC 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 Hardide PLC are associated (or correlated) with London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of Hardide PLC i.e., Hardide PLC and London Security go up and down completely randomly.

Pair Corralation between Hardide PLC and London Security

Assuming the 90 days trading horizon Hardide PLC is expected to under-perform the London Security. In addition to that, Hardide PLC is 2.09 times more volatile than London Security Plc. It trades about -0.04 of its total potential returns per unit of risk. London Security Plc is currently generating about 0.04 per unit of volatility. If you would invest  263,649  in London Security Plc on September 24, 2024 and sell it today you would earn a total of  76,351  from holding London Security Plc or generate 28.96% return on investment over 90 days.

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

Hardide PLC  vs.  London Security Plc

Hardide PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hardide PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Hardide PLC is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Hardide PLC and London Security

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

The idea behind Hardide PLC and London Security Plc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.