Correlation Between Home Products and Black Knight

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Can any of the company-specific risk be diversified away by investing in both Home Products and Black Knight 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 Products and Black Knight into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Products Center and Black Knight, you can compare the effects of market volatilities on Home Products and Black Knight 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 Products with a short position of Black Knight. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Products and Black Knight.

Diversification Opportunities for Home Products and Black Knight

0.07
  Correlation Coefficient

Significant diversification

The 3 months correlation between HPCRF and Black is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Home Products Center and Black Knight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Knight and Home Products 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 Products Center are associated (or correlated) with Black Knight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Knight has no effect on the direction of Home Products i.e., Home Products and Black Knight go up and down completely randomly.

Pair Corralation between Home Products and Black Knight

Assuming the 90 days horizon Home Products Center is expected to generate 5.62 times more return on investment than Black Knight. However, Home Products is 5.62 times more volatile than Black Knight. It trades about 0.05 of its potential returns per unit of risk. Black Knight is currently generating about -0.03 per unit of risk. If you would invest  32.00  in Home Products Center on August 28, 2022 and sell it today you would lose (1.00)  from holding Home Products Center or give up 3.12% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy99.72%
ValuesDaily Returns

Home Products Center  vs.  Black Knight

 Performance (%) 
       Timeline  
Home Products Center 
HPCRF Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Products Center are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Home Products exhibited solid returns over the last few months and may actually be approaching a breakup point.

HPCRF Price Channel

Black Knight 
Black Performance
0 of 100
Over the last 90 days Black Knight has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Black Knight is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Black Price Channel

Home Products and Black Knight Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Products and Black Knight

The main advantage of trading using opposite Home Products and Black Knight positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Products position performs unexpectedly, Black Knight 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 Black Knight will offset losses from the drop in Black Knight's long position.
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The idea behind Home Products Center and Black Knight 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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