Correlation Between Sectra AB and HMS Networks

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

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

Diversification Opportunities for Sectra AB and HMS Networks

-0.67

Correlation Coefficient

Sectra AB  HMS Networks

Excellent diversification

The 3 months correlation between Sectra and HMS is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sectra AB and HMS Networks AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMS Networks AB and Sectra AB 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 Sectra AB are associated (or correlated) with HMS Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMS Networks AB has no effect on the direction of Sectra AB i.e., Sectra AB and HMS Networks go up and down completely randomly.

Pair Corralation between Sectra AB and HMS Networks

Assuming the 90 days trading horizon Sectra AB is expected to generate 0.8 times more return on investment than HMS Networks. However, Sectra AB is 1.25 times less risky than HMS Networks. It trades about 0.19 of its potential returns per unit of risk. HMS Networks AB is currently generating about -0.06 per unit of risk. If you would invest  23,403  in Sectra AB on September 2, 2024 and sell it today you would earn a total of  5,067  from holding Sectra AB or generate 21.65% return on investment over 90 days.

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

Sectra AB  vs.  HMS Networks AB

Sectra AB

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sectra AB are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Sectra AB sustained solid returns over the last few months and may actually be approaching a breakup point.

HMS Networks AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HMS Networks AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Sectra AB and HMS Networks

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

The idea behind Sectra AB and HMS Networks AB 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.