Correlation Between American Premium and Hydrofarm Holdings

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

By analyzing existing cross correlation between American Premium Water and Hydrofarm Holdings Group, you can compare the effects of market volatilities on American Premium and Hydrofarm Holdings 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 American Premium with a short position of Hydrofarm Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Premium and Hydrofarm Holdings.

Diversification Opportunities for American Premium and Hydrofarm Holdings

-0.14

Correlation Coefficient

American Premium  Hydrofarm Holdings

Good diversification

The 3 months correlation between American and Hydrofarm is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding American Premium Water and Hydrofarm Holdings Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hydrofarm Holdings and American Premium 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 American Premium Water are associated (or correlated) with Hydrofarm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hydrofarm Holdings has no effect on the direction of American Premium i.e., American Premium and Hydrofarm Holdings go up and down completely randomly.

Pair Corralation between American Premium and Hydrofarm Holdings

Given the investment horizon of 90 days American Premium Water is expected to generate 30.55 times more return on investment than Hydrofarm Holdings. However, American Premium is 30.55 times more volatile than Hydrofarm Holdings Group. It trades about 0.17 of its potential returns per unit of risk. Hydrofarm Holdings Group is currently generating about -0.01 per unit of risk. If you would invest  0.06  in American Premium Water on September 20, 2024 and sell it today you would lose (0.05) from holding American Premium Water or give up 83.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.11%
Values	Daily Returns

American Premium Water  vs.  Hydrofarm Holdings Group

American Premium Water

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Premium Water are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, American Premium demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Hydrofarm Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hydrofarm Holdings Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Hydrofarm Holdings is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Premium and Hydrofarm Holdings

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

The idea behind American Premium Water and Hydrofarm Holdings Group 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.