Correlation Between HP and Sims

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

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

Diversification Opportunities for HP and Sims

0.11

Correlation Coefficient

HP  Sims

Average diversification

The 3 months correlation between HP and Sims is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Sims Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sims Limited 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 Sims. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sims Limited has no effect on the direction of HP i.e., HP and Sims go up and down completely randomly.

Pair Corralation between HP and Sims

Considering the 90-day investment horizon HP Inc is expected to under-perform the Sims. But the stock apears to be less risky and, when comparing its historical volatility, HP Inc is 1.57 times less risky than Sims. The stock trades about -0.1 of its potential returns per unit of risk. The Sims Limited is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  811.00  in Sims Limited on December 18, 2024 and sell it today you would lose (28.00) from holding Sims Limited or give up 3.45% of portfolio value over 90 days.

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

HP Inc  vs.  Sims Limited

HP Inc

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Sims Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sims Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sims is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HP and Sims

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

The idea behind HP Inc and Sims Limited 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.