Correlation Between Hufvudstaden and NEW WORLD

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

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

Diversification Opportunities for Hufvudstaden and NEW WORLD

-0.21

Correlation Coefficient

Hufvudstaden  NEW WORLD

Very good diversification

The 3 months correlation between Hufvudstaden and NEW is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Hufvudstaden AB and NEW WORLD DEVCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEW WORLD DEVCO and Hufvudstaden 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 Hufvudstaden AB are associated (or correlated) with NEW WORLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEW WORLD DEVCO has no effect on the direction of Hufvudstaden i.e., Hufvudstaden and NEW WORLD go up and down completely randomly.

Pair Corralation between Hufvudstaden and NEW WORLD

Assuming the 90 days trading horizon Hufvudstaden is expected to generate 3.74 times less return on investment than NEW WORLD. But when comparing it to its historical volatility, Hufvudstaden AB is 2.72 times less risky than NEW WORLD. It trades about 0.02 of its potential returns per unit of risk. NEW WORLD DEVCO is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  62.00  in NEW WORLD DEVCO on December 28, 2024 and sell it today you would earn a total of  1.00  from holding NEW WORLD DEVCO or generate 1.61% return on investment over 90 days.

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

Hufvudstaden AB  vs.  NEW WORLD DEVCO

Hufvudstaden AB

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hufvudstaden AB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hufvudstaden is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

NEW WORLD DEVCO

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NEW WORLD DEVCO are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, NEW WORLD is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hufvudstaden and NEW WORLD

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

The idea behind Hufvudstaden AB and NEW WORLD DEVCO 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.