Correlation Between Heritage Global and Houlihan Lokey

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

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

Diversification Opportunities for Heritage Global and Houlihan Lokey

-0.2

Correlation Coefficient

Heritage Global  Houlihan Lokey

Good diversification

The 3 months correlation between Heritage and Houlihan is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Global and Houlihan Lokey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houlihan Lokey and Heritage Global 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 Heritage Global are associated (or correlated) with Houlihan Lokey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houlihan Lokey has no effect on the direction of Heritage Global i.e., Heritage Global and Houlihan Lokey go up and down completely randomly.

Pair Corralation between Heritage Global and Houlihan Lokey

Given the investment horizon of 90 days Heritage Global is expected to generate 12.15 times less return on investment than Houlihan Lokey. In addition to that, Heritage Global is 1.21 times more volatile than Houlihan Lokey. It trades about 0.01 of its total potential returns per unit of risk. Houlihan Lokey is currently generating about 0.16 per unit of volatility. If you would invest  15,603  in Houlihan Lokey on August 30, 2024 and sell it today you would earn a total of  3,140  from holding Houlihan Lokey or generate 20.12% return on investment over 90 days.

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

Heritage Global  vs.  Houlihan Lokey

Heritage Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Heritage Global is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Houlihan Lokey

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Houlihan Lokey are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Houlihan Lokey demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heritage Global and Houlihan Lokey

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

The idea behind Heritage Global and Houlihan Lokey 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.