Correlation Between HPB and BTT

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

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

Diversification Opportunities for HPB and BTT

0.32

Correlation Coefficient

HPB  BTT

Weak diversification

The 3 months correlation between HPB and BTT is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding HPB and BTT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTT and HPB 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 HPB are associated (or correlated) with BTT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTT has no effect on the direction of HPB i.e., HPB and BTT go up and down completely randomly.

Pair Corralation between HPB and BTT

Assuming the 90 days trading horizon HPB is expected to generate 2.3 times less return on investment than BTT. But when comparing it to its historical volatility, HPB is 1.99 times less risky than BTT. It trades about 0.08 of its potential returns per unit of risk. BTT is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.00  in BTT on September 25, 2024 and sell it today you would earn a total of  0.00  from holding BTT or generate 0.0% return on investment over 90 days.

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

HPB  vs.  BTT

HPB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HPB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, HPB exhibited solid returns over the last few months and may actually be approaching a breakup point.

BTT

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BTT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BTT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HPB and BTT

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

The idea behind HPB and BTT 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.