Correlation Between HP and Daqo New
Can any of the company-specific risk be diversified away by investing in both HP and Daqo New 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 HP and Daqo New into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Daqo New Energy, you can compare the effects of market volatilities on HP and Daqo New 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 HP with a short position of Daqo New. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Daqo New.
Diversification Opportunities for HP and Daqo New
Very poor diversification
The 3 months correlation between HP and Daqo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Daqo New Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daqo New Energy and HP 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 HP Inc are associated (or correlated) with Daqo New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daqo New Energy has no effect on the direction of HP i.e., HP and Daqo New go up and down completely randomly.
Pair Corralation between HP and Daqo New
Considering the 90-day investment horizon HP Inc is expected to generate 0.33 times more return on investment than Daqo New. However, HP Inc is 3.02 times less risky than Daqo New. It trades about -0.11 of its potential returns per unit of risk. Daqo New Energy is currently generating about -0.39 per unit of risk. If you would invest 2,911 in HP Inc on February 5, 2024 and sell it today you would lose (93.00) from holding HP Inc or give up 3.19% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
HP Inc vs. Daqo New Energy
Performance |
Timeline |
HP Inc |
Daqo New Energy |
HP and Daqo New Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with HP and Daqo New
The main advantage of trading using opposite HP and Daqo New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Daqo New 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 Daqo New will offset losses from the drop in Daqo New's long position.The idea behind HP Inc and Daqo New Energy 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.Daqo New vs. Sumco Corp ADR | Daqo New vs. Lasertec | Daqo New vs. Asm Pacific Technology | Daqo New vs. Disco Corp ADR |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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