Correlation Between Regional Management and Houlihan Lokey

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

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

Diversification Opportunities for Regional Management and Houlihan Lokey

0.93

Correlation Coefficient

Regional Management  Houlihan Lokey

Almost no diversification

The 3 months correlation between Regional and Houlihan is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and Houlihan Lokey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houlihan Lokey and Regional Management 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 Regional Management Corp are associated (or correlated) with Houlihan Lokey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houlihan Lokey has no effect on the direction of Regional Management i.e., Regional Management and Houlihan Lokey go up and down completely randomly.

Pair Corralation between Regional Management and Houlihan Lokey

Allowing for the 90-day total investment horizon Regional Management Corp is expected to generate 1.13 times more return on investment than Houlihan Lokey. However, Regional Management is 1.13 times more volatile than Houlihan Lokey. It trades about -0.03 of its potential returns per unit of risk. Houlihan Lokey is currently generating about -0.07 per unit of risk. If you would invest  3,322  in Regional Management Corp on December 29, 2024 and sell it today you would lose (162.00) from holding Regional Management Corp or give up 4.88% of portfolio value over 90 days.

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

Regional Management Corp  vs.  Houlihan Lokey

Regional Management Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regional Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Regional Management is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Houlihan Lokey

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Regional Management and Houlihan Lokey

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

The idea behind Regional Management Corp and Houlihan Lokey 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.