Correlation Between HM Inwest and M Food

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

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

Diversification Opportunities for HM Inwest and M Food

0.56

Correlation Coefficient

HM Inwest  M Food

Very weak diversification

The 3 months correlation between HMI and MFD is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding HM Inwest SA and M Food SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Food SA and HM Inwest 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 HM Inwest SA are associated (or correlated) with M Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Food SA has no effect on the direction of HM Inwest i.e., HM Inwest and M Food go up and down completely randomly.

Pair Corralation between HM Inwest and M Food

Assuming the 90 days trading horizon HM Inwest is expected to generate 5.8 times less return on investment than M Food. But when comparing it to its historical volatility, HM Inwest SA is 1.54 times less risky than M Food. It trades about 0.04 of its potential returns per unit of risk. M Food SA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  79.00  in M Food SA on December 28, 2024 and sell it today you would earn a total of  41.00  from holding M Food SA or generate 51.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	86.89%
Values	Daily Returns

HM Inwest SA  vs.  M Food SA

HM Inwest SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HM Inwest SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, HM Inwest may actually be approaching a critical reversion point that can send shares even higher in April 2025.

M Food SA

Risk-Adjusted Performance

Good

Over the last 90 days M Food SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively weak basic indicators, M Food reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HM Inwest and M Food

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

The idea behind HM Inwest SA and M Food SA 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.