Correlation Between HPB and GXC

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

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

Diversification Opportunities for HPB and GXC

0.1

Correlation Coefficient

HPB  GXC

Average diversification

The 3 months correlation between HPB and GXC is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding HPB and GXC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GXC 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 GXC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GXC has no effect on the direction of HPB i.e., HPB and GXC go up and down completely randomly.

Pair Corralation between HPB and GXC

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	Insignificant
Accuracy	4.55%
Values	Daily Returns

HPB  vs.  GXC

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.

GXC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GXC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, GXC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HPB and GXC

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

The idea behind HPB and GXC 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 Transaction History module to view history of all your transactions and understand their impact on performance.