Correlation Between Highlight Communications and USWE SPORTS

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

By analyzing existing cross correlation between Highlight Communications AG and USWE SPORTS AB, you can compare the effects of market volatilities on Highlight Communications and USWE SPORTS 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 Highlight Communications with a short position of USWE SPORTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highlight Communications and USWE SPORTS.

Diversification Opportunities for Highlight Communications and USWE SPORTS

0.43

Correlation Coefficient

Highlight Communications  USWE SPORTS

Very weak diversification

The 3 months correlation between Highlight and USWE is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Highlight Communications AG and USWE SPORTS AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USWE SPORTS AB and Highlight Communications 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 Highlight Communications AG are associated (or correlated) with USWE SPORTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USWE SPORTS AB has no effect on the direction of Highlight Communications i.e., Highlight Communications and USWE SPORTS go up and down completely randomly.

Pair Corralation between Highlight Communications and USWE SPORTS

Assuming the 90 days trading horizon Highlight Communications AG is expected to generate 1.4 times more return on investment than USWE SPORTS. However, Highlight Communications is 1.4 times more volatile than USWE SPORTS AB. It trades about -0.05 of its potential returns per unit of risk. USWE SPORTS AB is currently generating about -0.15 per unit of risk. If you would invest  106.00  in Highlight Communications AG on September 22, 2024 and sell it today you would lose (4.00) from holding Highlight Communications AG or give up 3.77% of portfolio value over 90 days.

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

Highlight Communications AG  vs.  USWE SPORTS AB

Highlight Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Highlight Communications AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

USWE SPORTS AB

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in USWE SPORTS AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, USWE SPORTS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Highlight Communications and USWE SPORTS

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

The idea behind Highlight Communications AG and USWE SPORTS AB 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.