Correlation Between HIT and REDLANG

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

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

Diversification Opportunities for HIT and REDLANG

0.14

Correlation Coefficient

HIT  REDLANG

Average diversification

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

Pair Corralation between HIT and REDLANG

Assuming the 90 days trading horizon HIT is expected to generate 3.42 times more return on investment than REDLANG. However, HIT is 3.42 times more volatile than REDLANG. It trades about 0.09 of its potential returns per unit of risk. REDLANG is currently generating about 0.0 per unit of risk. If you would invest  0.00  in HIT on February 18, 2025 and sell it today you would earn a total of  0.00  from holding HIT or generate 0.0% return on investment over 90 days.

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

HIT  vs.  REDLANG

HIT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HIT are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, HIT exhibited solid returns over the last few months and may actually be approaching a breakup point.

REDLANG

Risk-Adjusted Performance

Very Weak

Over the last 90 days REDLANG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, REDLANG is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HIT and REDLANG

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

The idea behind HIT and REDLANG 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.