Correlation Between HMS Networks and Vitec Software

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

By analyzing existing cross correlation between HMS Networks AB and Vitec Software Group, you can compare the effects of market volatilities on HMS Networks and Vitec Software 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 HMS Networks with a short position of Vitec Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of HMS Networks and Vitec Software.

Diversification Opportunities for HMS Networks and Vitec Software

0.65

Correlation Coefficient

HMS Networks  Vitec Software

Poor diversification

The 3 months correlation between HMS and Vitec is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding HMS Networks AB and Vitec Software Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vitec Software Group and HMS Networks 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 HMS Networks AB are associated (or correlated) with Vitec Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vitec Software Group has no effect on the direction of HMS Networks i.e., HMS Networks and Vitec Software go up and down completely randomly.

Pair Corralation between HMS Networks and Vitec Software

Assuming the 90 days trading horizon HMS Networks AB is expected to under-perform the Vitec Software. But the stock apears to be less risky and, when comparing its historical volatility, HMS Networks AB is 1.2 times less risky than Vitec Software. The stock trades about -0.06 of its potential returns per unit of risk. The Vitec Software Group is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  53,522  in Vitec Software Group on September 2, 2024 and sell it today you would lose (4,662) from holding Vitec Software Group or give up 8.71% of portfolio value over 90 days.

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

HMS Networks AB  vs.  Vitec Software Group

HMS Networks AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HMS Networks AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Vitec Software Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vitec Software Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Pair Trading with HMS Networks and Vitec Software

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

The idea behind HMS Networks AB and Vitec Software Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.