Correlation Between H M and ABB

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

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

Diversification Opportunities for H M and ABB

-0.36

Correlation Coefficient

H M  ABB

Very good diversification

The 3 months correlation between HM-B and ABB is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding H M Hennes and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and H M 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 H M Hennes are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of H M i.e., H M and ABB go up and down completely randomly.

Pair Corralation between H M and ABB

Assuming the 90 days trading horizon H M Hennes is expected to under-perform the ABB. In addition to that, H M is 1.6 times more volatile than ABB. It trades about -0.01 of its total potential returns per unit of risk. ABB is currently generating about 0.11 per unit of volatility. If you would invest  41,940  in ABB on October 3, 2024 and sell it today you would earn a total of  17,600  from holding ABB or generate 41.96% return on investment over 90 days.

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

H M Hennes  vs.  ABB

H M Hennes

Risk-Adjusted Performance

0 of 100

Very Weak

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

ABB

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, ABB is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with H M and ABB

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

The idea behind H M Hennes and ABB 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.