Correlation Between Hermes International and Icape Holding

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

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

Diversification Opportunities for Hermes International and Icape Holding

-0.11

Correlation Coefficient

Hermes International  Icape Holding

Good diversification

The 3 months correlation between Hermes and Icape is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SCA and Icape Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icape Holding and Hermes International 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 Hermes International SCA are associated (or correlated) with Icape Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icape Holding has no effect on the direction of Hermes International i.e., Hermes International and Icape Holding go up and down completely randomly.

Pair Corralation between Hermes International and Icape Holding

Assuming the 90 days trading horizon Hermes International SCA is expected to generate 0.5 times more return on investment than Icape Holding. However, Hermes International SCA is 1.99 times less risky than Icape Holding. It trades about 0.06 of its potential returns per unit of risk. Icape Holding is currently generating about -0.02 per unit of risk. If you would invest  159,395  in Hermes International SCA on October 10, 2024 and sell it today you would earn a total of  77,105  from holding Hermes International SCA or generate 48.37% return on investment over 90 days.

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

Hermes International SCA  vs.  Icape Holding

Hermes International SCA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SCA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hermes International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Icape Holding

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Icape Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Icape Holding may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hermes International and Icape Holding

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

The idea behind Hermes International SCA and Icape Holding 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.