Correlation Between Humble Group and Momentum Group

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

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

Diversification Opportunities for Humble Group and Momentum Group

0.42

Correlation Coefficient

Humble Group  Momentum Group

Very weak diversification

The 3 months correlation between Humble and Momentum is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Humble Group AB and Momentum Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Momentum Group AB and Humble Group 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 Humble Group AB are associated (or correlated) with Momentum Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Momentum Group AB has no effect on the direction of Humble Group i.e., Humble Group and Momentum Group go up and down completely randomly.

Pair Corralation between Humble Group and Momentum Group

Assuming the 90 days trading horizon Humble Group AB is expected to generate 1.16 times more return on investment than Momentum Group. However, Humble Group is 1.16 times more volatile than Momentum Group AB. It trades about 0.22 of its potential returns per unit of risk. Momentum Group AB is currently generating about 0.01 per unit of risk. If you would invest  1,070  in Humble Group AB on September 23, 2024 and sell it today you would earn a total of  160.00  from holding Humble Group AB or generate 14.95% return on investment over 90 days.

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

Humble Group AB  vs.  Momentum Group AB

Humble Group AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Humble Group AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Humble Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Momentum Group AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Momentum Group AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Momentum Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Humble Group and Momentum Group

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

The idea behind Humble Group AB and Momentum Group AB 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.