Correlation Between HP and Extreme Networks

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

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

Diversification Opportunities for HP and Extreme Networks

-0.45

Correlation Coefficient

HP  Extreme Networks

Very good diversification

The 3 months correlation between HP and Extreme is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Extreme Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extreme Networks and HP 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 HP Inc are associated (or correlated) with Extreme Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extreme Networks has no effect on the direction of HP i.e., HP and Extreme Networks go up and down completely randomly.

Pair Corralation between HP and Extreme Networks

Considering the 90-day investment horizon HP Inc is expected to under-perform the Extreme Networks. In addition to that, HP is 1.16 times more volatile than Extreme Networks. It trades about -0.09 of its total potential returns per unit of risk. Extreme Networks is currently generating about 0.03 per unit of volatility. If you would invest  1,645  in Extreme Networks on October 7, 2024 and sell it today you would earn a total of  23.00  from holding Extreme Networks or generate 1.4% return on investment over 90 days.

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

HP Inc  vs.  Extreme Networks

HP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Extreme Networks

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Extreme Networks are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Extreme Networks reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HP and Extreme Networks

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

The idea behind HP Inc and Extreme Networks 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.