Correlation Between Industria and Home Capital

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

By analyzing existing cross correlation between Industria de Diseno and Home Capital Rentals, you can compare the effects of market volatilities on Industria and Home Capital 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 Industria with a short position of Home Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industria and Home Capital.

Diversification Opportunities for Industria and Home Capital

0.1

Correlation Coefficient

Industria  Home Capital

Average diversification

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

Pair Corralation between Industria and Home Capital

Assuming the 90 days trading horizon Industria de Diseno is expected to generate 1.33 times more return on investment than Home Capital. However, Industria is 1.33 times more volatile than Home Capital Rentals. It trades about 0.05 of its potential returns per unit of risk. Home Capital Rentals is currently generating about -0.12 per unit of risk. If you would invest  4,936  in Industria de Diseno on September 12, 2024 and sell it today you would earn a total of  176.00  from holding Industria de Diseno or generate 3.57% return on investment over 90 days.

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

Industria de Diseno  vs.  Home Capital Rentals

Industria de Diseno

Risk-Adjusted Performance

3 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industria de Diseno are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Industria is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Home Capital Rentals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Capital Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Industria and Home Capital

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

The idea behind Industria de Diseno and Home Capital Rentals 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.