Correlation Between H2O Retailing and Dillards

Can any of the company-specific risk be diversified away by investing in both H2O Retailing and Dillards 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 H2O Retailing and Dillards into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between H2O Retailing and Dillards, you can compare the effects of market volatilities on H2O Retailing and Dillards 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 H2O Retailing with a short position of Dillards. Check out your portfolio center. Please also check ongoing floating volatility patterns of H2O Retailing and Dillards.

Diversification Opportunities for H2O Retailing and Dillards

0.59

Correlation Coefficient

H2O Retailing  Dillards

Very weak diversification

The 3 months correlation between H2O and Dillards is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding H2O Retailing and Dillards in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dillards and H2O Retailing 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 H2O Retailing are associated (or correlated) with Dillards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dillards has no effect on the direction of H2O Retailing i.e., H2O Retailing and Dillards go up and down completely randomly.

Pair Corralation between H2O Retailing and Dillards

Assuming the 90 days horizon H2O Retailing is expected to generate 3.13 times less return on investment than Dillards. But when comparing it to its historical volatility, H2O Retailing is 1.79 times less risky than Dillards. It trades about 0.12 of its potential returns per unit of risk. Dillards is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  31,439  in Dillards on October 8, 2024 and sell it today you would earn a total of  12,161  from holding Dillards or generate 38.68% return on investment over 90 days.

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

H2O Retailing  vs.  Dillards

H2O Retailing

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in H2O Retailing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, H2O Retailing may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Dillards

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dillards are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dillards reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with H2O Retailing and Dillards

The main advantage of trading using opposite H2O Retailing and Dillards positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H2O Retailing position performs unexpectedly, Dillards 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 Dillards will offset losses from the drop in Dillards' long position.

The idea behind H2O Retailing and Dillards 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .