Correlation Between RH and Solid Power

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

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

Diversification Opportunities for RH and Solid Power

0.43

Correlation Coefficient

RH  Solid Power

Very weak diversification

The 3 months correlation between RH and Solid is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding RH and Solid Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solid Power and RH 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 RH are associated (or correlated) with Solid Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solid Power has no effect on the direction of RH i.e., RH and Solid Power go up and down completely randomly.

Pair Corralation between RH and Solid Power

Allowing for the 90-day total investment horizon RH is expected to under-perform the Solid Power. But the stock apears to be less risky and, when comparing its historical volatility, RH is 1.84 times less risky than Solid Power. The stock trades about -0.03 of its potential returns per unit of risk. The Solid Power is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  116.00  in Solid Power on November 28, 2024 and sell it today you would earn a total of  4.00  from holding Solid Power or generate 3.45% return on investment over 90 days.

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

RH  vs.  Solid Power

RH

Risk-Adjusted Performance

Very Weak

Over the last 90 days RH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Solid Power

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Solid Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile fundamental indicators, Solid Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RH and Solid Power

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

The idea behind RH and Solid Power 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.