Correlation Between Honest and Software Acquisition

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

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

Diversification Opportunities for Honest and Software Acquisition

-0.52

Correlation Coefficient

Honest  Software Acquisition

Excellent diversification

The 3 months correlation between Honest and Software is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Honest Company and Software Acquisition Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Acquisition and Honest 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 Honest Company are associated (or correlated) with Software Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Acquisition has no effect on the direction of Honest i.e., Honest and Software Acquisition go up and down completely randomly.

Pair Corralation between Honest and Software Acquisition

Given the investment horizon of 90 days Honest Company is expected to under-perform the Software Acquisition. But the stock apears to be less risky and, when comparing its historical volatility, Honest Company is 8.54 times less risky than Software Acquisition. The stock trades about -0.24 of its potential returns per unit of risk. The Software Acquisition Group is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Software Acquisition Group on October 11, 2024 and sell it today you would earn a total of  0.74  from holding Software Acquisition Group or generate 74.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.71%
Values	Daily Returns

Honest Company  vs.  Software Acquisition Group

Honest Company

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Honest Company are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Honest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Software Acquisition

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Software Acquisition Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Software Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honest and Software Acquisition

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

The idea behind Honest Company and Software Acquisition 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.