Correlation Between THR and HYN
Can any of the company-specific risk be diversified away by investing in both THR and HYN 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 THR and HYN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between THR and HYN, you can compare the effects of market volatilities on THR and HYN 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 THR with a short position of HYN. Check out your portfolio center. Please also check ongoing floating volatility patterns of THR and HYN.
Diversification Opportunities for THR and HYN
Good diversification
The 3 months correlation between THR and HYN is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding THR and HYN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HYN and THR 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 THR are associated (or correlated) with HYN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HYN has no effect on the direction of THR i.e., THR and HYN go up and down completely randomly.
Pair Corralation between THR and HYN
Assuming the 90 days trading horizon THR is expected to generate 10.89 times more return on investment than HYN. However, THR is 10.89 times more volatile than HYN. It trades about 0.05 of its potential returns per unit of risk. HYN is currently generating about 0.04 per unit of risk. If you would invest 1,520,900 in THR on January 25, 2024 and sell it today you would lose (471,185) from holding THR or give up 30.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
THR vs. HYN
Performance |
| Timeline |
| THR |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| HYN |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
THR and HYN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with THR and HYN
The main advantage of trading using opposite THR and HYN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if THR position performs unexpectedly, HYN 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 HYN will offset losses from the drop in HYN's long position.The idea behind THR and HYN 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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