Correlation Between HNB Finance and Arpico Insurance

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

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

Diversification Opportunities for HNB Finance and Arpico Insurance

-0.36

Correlation Coefficient

HNB Finance  Arpico Insurance

Very good diversification

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

Pair Corralation between HNB Finance and Arpico Insurance

Assuming the 90 days trading horizon HNB Finance is expected to generate 2.26 times less return on investment than Arpico Insurance. But when comparing it to its historical volatility, HNB Finance is 1.24 times less risky than Arpico Insurance. It trades about 0.02 of its potential returns per unit of risk. Arpico Insurance is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,000  in Arpico Insurance on October 4, 2024 and sell it today you would earn a total of  650.00  from holding Arpico Insurance or generate 32.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	66.09%
Values	Daily Returns

HNB Finance  vs.  Arpico Insurance

HNB Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HNB Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Arpico Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arpico Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Arpico Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HNB Finance and Arpico Insurance

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

The idea behind HNB Finance and Arpico Insurance 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.