Correlation Between H2O Retailing and Essentra Plc

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Can any of the company-specific risk be diversified away by investing in both H2O Retailing and Essentra Plc 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 Essentra Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between H2O Retailing and Essentra plc, you can compare the effects of market volatilities on H2O Retailing and Essentra Plc 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 Essentra Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of H2O Retailing and Essentra Plc.

Diversification Opportunities for H2O Retailing and Essentra Plc

-0.74
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between H2O and Essentra is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding H2O Retailing and Essentra plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essentra plc 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 Essentra Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essentra plc has no effect on the direction of H2O Retailing i.e., H2O Retailing and Essentra Plc go up and down completely randomly.

Pair Corralation between H2O Retailing and Essentra Plc

Assuming the 90 days horizon H2O Retailing is expected to generate 0.97 times more return on investment than Essentra Plc. However, H2O Retailing is 1.04 times less risky than Essentra Plc. It trades about 0.06 of its potential returns per unit of risk. Essentra plc is currently generating about -0.11 per unit of risk. If you would invest  1,290  in H2O Retailing on October 11, 2024 and sell it today you would earn a total of  60.00  from holding H2O Retailing or generate 4.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

H2O Retailing  vs.  Essentra plc

 Performance 
       Timeline  
H2O Retailing 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in H2O Retailing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, H2O Retailing is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.
Essentra plc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Essentra plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

H2O Retailing and Essentra Plc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with H2O Retailing and Essentra Plc

The main advantage of trading using opposite H2O Retailing and Essentra Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H2O Retailing position performs unexpectedly, Essentra Plc 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 Essentra Plc will offset losses from the drop in Essentra Plc's long position.
The idea behind H2O Retailing and Essentra plc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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