Correlation Between JAMES HARDIE and Focus Home

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

By analyzing existing cross correlation between JAMES HARDIE INDUSTADR1 and Focus Home Interactive, you can compare the effects of market volatilities on JAMES HARDIE and Focus Home 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 JAMES HARDIE with a short position of Focus Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAMES HARDIE and Focus Home.

Diversification Opportunities for JAMES HARDIE and Focus Home

0.42

Correlation Coefficient

JAMES HARDIE  Focus Home

Very weak diversification

The 3 months correlation between JAMES and Focus is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding JAMES HARDIE INDUSTADR1 and Focus Home Interactive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Home Interactive and JAMES HARDIE 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 JAMES HARDIE INDUSTADR1 are associated (or correlated) with Focus Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Home Interactive has no effect on the direction of JAMES HARDIE i.e., JAMES HARDIE and Focus Home go up and down completely randomly.

Pair Corralation between JAMES HARDIE and Focus Home

Assuming the 90 days trading horizon JAMES HARDIE INDUSTADR1 is expected to under-perform the Focus Home. But the stock apears to be less risky and, when comparing its historical volatility, JAMES HARDIE INDUSTADR1 is 1.5 times less risky than Focus Home. The stock trades about -0.05 of its potential returns per unit of risk. The Focus Home Interactive is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,868  in Focus Home Interactive on December 20, 2024 and sell it today you would lose (114.00) from holding Focus Home Interactive or give up 6.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

JAMES HARDIE INDUSTADR1  vs.  Focus Home Interactive

JAMES HARDIE INDUSTADR1

Risk-Adjusted Performance

Very Weak

Over the last 90 days JAMES HARDIE INDUSTADR1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JAMES HARDIE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Focus Home Interactive

Risk-Adjusted Performance

Very Weak

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

Pair Trading with JAMES HARDIE and Focus Home

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

The idea behind JAMES HARDIE INDUSTADR1 and Focus Home Interactive 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.