Correlation Between Vitec Software and HMS Networks

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

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

Diversification Opportunities for Vitec Software and HMS Networks

0.65

Correlation Coefficient

Vitec Software  HMS Networks

Poor diversification

The 3 months correlation between Vitec and HMS is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vitec Software Group 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 Vitec Software 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 Vitec Software Group 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 Vitec Software i.e., Vitec Software and HMS Networks go up and down completely randomly.

Pair Corralation between Vitec Software and HMS Networks

Assuming the 90 days trading horizon Vitec Software Group is expected to generate 1.2 times more return on investment than HMS Networks. However, Vitec Software is 1.2 times more volatile than HMS Networks AB. It trades about -0.05 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  53,522  in Vitec Software Group on September 2, 2024 and sell it today you would lose (4,662) from holding Vitec Software Group or give up 8.71% of portfolio value over 90 days.

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

Vitec Software Group  vs.  HMS Networks AB

Vitec Software Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vitec Software Group 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.

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 Vitec Software and HMS Networks

The main advantage of trading using opposite Vitec Software and HMS Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vitec Software 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 Vitec Software Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.