Correlation Between Home First and Repco Home

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

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

Diversification Opportunities for Home First and Repco Home

0.5

Correlation Coefficient

Home First  Repco Home

Very weak diversification

The 3 months correlation between Home and Repco is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Home First Finance and Repco Home Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Repco Home Finance and Home First 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 Home First Finance are associated (or correlated) with Repco Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Repco Home Finance has no effect on the direction of Home First i.e., Home First and Repco Home go up and down completely randomly.

Pair Corralation between Home First and Repco Home

Assuming the 90 days trading horizon Home First Finance is expected to generate 1.46 times more return on investment than Repco Home. However, Home First is 1.46 times more volatile than Repco Home Finance. It trades about -0.02 of its potential returns per unit of risk. Repco Home Finance is currently generating about -0.04 per unit of risk. If you would invest  112,905  in Home First Finance on September 3, 2024 and sell it today you would lose (7,690) from holding Home First Finance or give up 6.81% of portfolio value over 90 days.

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

Home First Finance  vs.  Repco Home Finance

Home First Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home First Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Home First is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Repco Home Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Repco Home Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Repco Home is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Home First and Repco Home

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

The idea behind Home First Finance and Repco Home Finance 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.