Correlation Between UPS CDR and HPQ Silicon

Can any of the company-specific risk be diversified away by investing in both UPS CDR and HPQ Silicon 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 UPS CDR and HPQ Silicon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between UPS CDR and HPQ Silicon Resources, you can compare the effects of market volatilities on UPS CDR and HPQ Silicon 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 UPS CDR with a short position of HPQ Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of UPS CDR and HPQ Silicon.

Diversification Opportunities for UPS CDR and HPQ Silicon

0.44

Correlation Coefficient

UPS CDR  HPQ Silicon

Very weak diversification

The 3 months correlation between UPS and HPQ is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding UPS CDR and HPQ Silicon Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HPQ Silicon Resources and UPS CDR 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 UPS CDR are associated (or correlated) with HPQ Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HPQ Silicon Resources has no effect on the direction of UPS CDR i.e., UPS CDR and HPQ Silicon go up and down completely randomly.

Pair Corralation between UPS CDR and HPQ Silicon

Assuming the 90 days trading horizon UPS CDR is expected to under-perform the HPQ Silicon. But the stock apears to be less risky and, when comparing its historical volatility, UPS CDR is 2.19 times less risky than HPQ Silicon. The stock trades about -0.05 of its potential returns per unit of risk. The HPQ Silicon Resources is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  23.00  in HPQ Silicon Resources on December 25, 2024 and sell it today you would lose (2.00) from holding HPQ Silicon Resources or give up 8.7% of portfolio value over 90 days.

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

UPS CDR  vs.  HPQ Silicon Resources

UPS CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days UPS CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

HPQ Silicon Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days HPQ Silicon Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, HPQ Silicon is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with UPS CDR and HPQ Silicon

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

The idea behind UPS CDR and HPQ Silicon Resources 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..