Correlation Between Hermes International and Solutions

Can any of the company-specific risk be diversified away by investing in both Hermes International and Solutions 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 Solutions 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 Solutions 30 SE, you can compare the effects of market volatilities on Hermes International and Solutions 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 Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hermes International and Solutions.

Diversification Opportunities for Hermes International and Solutions

0.14

Correlation Coefficient

Hermes International  Solutions

Average diversification

The 3 months correlation between Hermes and Solutions is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SCA and Solutions 30 SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solutions 30 SE 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 Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solutions 30 SE has no effect on the direction of Hermes International i.e., Hermes International and Solutions go up and down completely randomly.

Pair Corralation between Hermes International and Solutions

Assuming the 90 days trading horizon Hermes International is expected to generate 11.21 times less return on investment than Solutions. But when comparing it to its historical volatility, Hermes International SCA is 3.68 times less risky than Solutions. It trades about 0.06 of its potential returns per unit of risk. Solutions 30 SE is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  92.00  in Solutions 30 SE on December 31, 2024 and sell it today you would earn a total of  66.00  from holding Solutions 30 SE or generate 71.74% return on investment over 90 days.

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

Hermes International SCA  vs.  Solutions 30 SE

Hermes International SCA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SCA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hermes International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Solutions 30 SE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solutions 30 SE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Solutions sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hermes International and Solutions

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

The idea behind Hermes International SCA and Solutions 30 SE 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.