Correlation Between Homasote and Simpson Manufacturing

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

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

Diversification Opportunities for Homasote and Simpson Manufacturing

-0.72

Correlation Coefficient

Homasote  Simpson Manufacturing

Pay attention - limited upside

The 3 months correlation between Homasote and Simpson is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Homasote Co and Simpson Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simpson Manufacturing and Homasote 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 Homasote Co are associated (or correlated) with Simpson Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simpson Manufacturing has no effect on the direction of Homasote i.e., Homasote and Simpson Manufacturing go up and down completely randomly.

Pair Corralation between Homasote and Simpson Manufacturing

Given the investment horizon of 90 days Homasote Co is expected to generate 5.2 times more return on investment than Simpson Manufacturing. However, Homasote is 5.2 times more volatile than Simpson Manufacturing. It trades about 0.33 of its potential returns per unit of risk. Simpson Manufacturing is currently generating about -0.29 per unit of risk. If you would invest  293.00  in Homasote Co on October 6, 2024 and sell it today you would earn a total of  172.00  from holding Homasote Co or generate 58.7% return on investment over 90 days.

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

Homasote Co  vs.  Simpson Manufacturing

Homasote

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Homasote Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Homasote exhibited solid returns over the last few months and may actually be approaching a breakup point.

Simpson Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Simpson Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Homasote and Simpson Manufacturing

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

The idea behind Homasote Co and Simpson Manufacturing 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.