Correlation Between HPB and EOS

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

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

Diversification Opportunities for HPB and EOS

0.38

Correlation Coefficient

HPB  EOS

Weak diversification

The 3 months correlation between HPB and EOS is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding HPB and EOS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOS 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 EOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EOS has no effect on the direction of HPB i.e., HPB and EOS go up and down completely randomly.

Pair Corralation between HPB and EOS

Assuming the 90 days trading horizon HPB is expected to generate 1.06 times more return on investment than EOS. However, HPB is 1.06 times more volatile than EOS. It trades about 0.08 of its potential returns per unit of risk. EOS is currently generating about 0.08 per unit of risk. If you would invest  0.49  in HPB on September 25, 2024 and sell it today you would earn a total of  0.04  from holding HPB or generate 7.31% 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.  EOS

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.

EOS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EOS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, EOS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HPB and EOS

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

The idea behind HPB and EOS 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.