Correlation Between HE Equipment and Reservoir Media

Can any of the company-specific risk be diversified away by investing in both HE Equipment and Reservoir Media 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 Reservoir Media 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 Reservoir Media, you can compare the effects of market volatilities on HE Equipment and Reservoir Media 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 Reservoir Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of HE Equipment and Reservoir Media.

Diversification Opportunities for HE Equipment and Reservoir Media

0.56

Correlation Coefficient

HE Equipment  Reservoir Media

Very weak diversification

The 3 months correlation between HEES and Reservoir is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Reservoir Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reservoir Media 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 Reservoir Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reservoir Media has no effect on the direction of HE Equipment i.e., HE Equipment and Reservoir Media go up and down completely randomly.

Pair Corralation between HE Equipment and Reservoir Media

Given the investment horizon of 90 days HE Equipment Services is expected to under-perform the Reservoir Media. But the stock apears to be less risky and, when comparing its historical volatility, HE Equipment Services is 1.43 times less risky than Reservoir Media. The stock trades about -0.51 of its potential returns per unit of risk. The Reservoir Media is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  929.00  in Reservoir Media on October 8, 2024 and sell it today you would lose (80.00) from holding Reservoir Media or give up 8.61% of portfolio value over 90 days.

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

HE Equipment Services  vs.  Reservoir Media

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.

Reservoir Media

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with HE Equipment and Reservoir Media

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

The idea behind HE Equipment Services and Reservoir Media 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..