Correlation Between HE Equipment and Joint Stock

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

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

Diversification Opportunities for HE Equipment and Joint Stock

0.64

Correlation Coefficient

HE Equipment  Joint Stock

Poor diversification

The 3 months correlation between HEES and Joint is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Joint Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Joint Stock and HE Equipment 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 HE Equipment Services are associated (or correlated) with Joint Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Joint Stock has no effect on the direction of HE Equipment i.e., HE Equipment and Joint Stock go up and down completely randomly.

Pair Corralation between HE Equipment and Joint Stock

Given the investment horizon of 90 days HE Equipment Services is expected to under-perform the Joint Stock. In addition to that, HE Equipment is 1.06 times more volatile than Joint Stock. It trades about -0.21 of its total potential returns per unit of risk. Joint Stock is currently generating about -0.17 per unit of volatility. If you would invest  11,369  in Joint Stock on October 7, 2024 and sell it today you would lose (1,482) from holding Joint Stock or give up 13.04% of portfolio value over 90 days.

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

HE Equipment Services  vs.  Joint Stock

HE Equipment Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HE Equipment Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, HE Equipment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Joint Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Joint Stock has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Joint Stock is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with HE Equipment and Joint Stock

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

The idea behind HE Equipment Services and Joint Stock 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.