Correlation Between HP and Ubiquiti Networks

Can any of the company-specific risk be diversified away by investing in both HP and Ubiquiti 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 Ubiquiti 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 Ubiquiti Networks, you can compare the effects of market volatilities on HP and Ubiquiti 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 Ubiquiti Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Ubiquiti Networks.

Diversification Opportunities for HP and Ubiquiti Networks

0.67

Correlation Coefficient

HP  Ubiquiti Networks

Poor diversification

The 3 months correlation between HP and Ubiquiti is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Ubiquiti Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ubiquiti 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 Ubiquiti Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ubiquiti Networks has no effect on the direction of HP i.e., HP and Ubiquiti Networks go up and down completely randomly.

Pair Corralation between HP and Ubiquiti Networks

Considering the 90-day investment horizon HP is expected to generate 25.1 times less return on investment than Ubiquiti Networks. But when comparing it to its historical volatility, HP Inc is 1.48 times less risky than Ubiquiti Networks. It trades about 0.02 of its potential returns per unit of risk. Ubiquiti Networks is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  19,503  in Ubiquiti Networks on September 2, 2024 and sell it today you would earn a total of  15,146  from holding Ubiquiti Networks or generate 77.66% return on investment over 90 days.

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

HP Inc  vs.  Ubiquiti Networks

HP Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, HP is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Ubiquiti Networks

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ubiquiti Networks are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Ubiquiti Networks demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HP and Ubiquiti Networks

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

The idea behind HP Inc and Ubiquiti 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.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.