Correlation Between Home Capital and Mapfre

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

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

Diversification Opportunities for Home Capital and Mapfre

-0.63

Correlation Coefficient

Home Capital  Mapfre

Excellent diversification

The 3 months correlation between Home and Mapfre is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Home Capital Rentals and Mapfre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mapfre and Home Capital 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 Home Capital Rentals are associated (or correlated) with Mapfre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mapfre has no effect on the direction of Home Capital i.e., Home Capital and Mapfre go up and down completely randomly.

Pair Corralation between Home Capital and Mapfre

Assuming the 90 days trading horizon Home Capital Rentals is expected to under-perform the Mapfre. But the stock apears to be less risky and, when comparing its historical volatility, Home Capital Rentals is 1.43 times less risky than Mapfre. The stock trades about -0.13 of its potential returns per unit of risk. The Mapfre is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  243.00  in Mapfre on December 21, 2024 and sell it today you would earn a total of  43.00  from holding Mapfre or generate 17.7% return on investment over 90 days.

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

Home Capital Rentals  vs.  Mapfre

Home Capital Rentals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Capital Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Mapfre

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mapfre are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Mapfre exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Capital and Mapfre

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

The idea behind Home Capital Rentals and Mapfre 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.