Correlation Between Tree House and Hilton Metal

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

By analyzing existing cross correlation between Tree House Education and Hilton Metal Forging, you can compare the effects of market volatilities on Tree House and Hilton Metal 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 Tree House with a short position of Hilton Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tree House and Hilton Metal.

Diversification Opportunities for Tree House and Hilton Metal

0.21

Correlation Coefficient

Tree House  Hilton Metal

Modest diversification

The 3 months correlation between Tree and Hilton is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Tree House Education and Hilton Metal Forging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hilton Metal Forging and Tree House 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 Tree House Education are associated (or correlated) with Hilton Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hilton Metal Forging has no effect on the direction of Tree House i.e., Tree House and Hilton Metal go up and down completely randomly.

Pair Corralation between Tree House and Hilton Metal

Assuming the 90 days trading horizon Tree House is expected to generate 2.94 times less return on investment than Hilton Metal. In addition to that, Tree House is 1.02 times more volatile than Hilton Metal Forging. It trades about 0.01 of its total potential returns per unit of risk. Hilton Metal Forging is currently generating about 0.04 per unit of volatility. If you would invest  8,075  in Hilton Metal Forging on October 10, 2024 and sell it today you would earn a total of  3,583  from holding Hilton Metal Forging or generate 44.37% return on investment over 90 days.

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

Tree House Education  vs.  Hilton Metal Forging

Tree House Education

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Tree House Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Tree House is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Hilton Metal Forging

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hilton Metal Forging are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hilton Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tree House and Hilton Metal

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

The idea behind Tree House Education and Hilton Metal Forging 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.

Check out your portfolio center.

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.