Correlation Between HP and AAR Corp

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

Diversification Opportunities for HP and AAR Corp

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between HP and AAR Corp is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp 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 AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of HP i.e., HP and AAR Corp go up and down completely randomly.

Pair Corralation between HP and AAR Corp

Considering the 90-day investment horizon HP is expected to generate 1.03 times less return on investment than AAR Corp. In addition to that, HP is 1.5 times more volatile than AAR Corp. It trades about 0.2 of its total potential returns per unit of risk. AAR Corp is currently generating about 0.3 per unit of volatility. If you would invest  4,246  in AAR Corp on September 4, 2022 and sell it today you would earn a total of  510.00  from holding AAR Corp or generate 12.01% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

HP Inc  vs.  AAR Corp

 Performance (%) 
       Timeline  
HP Inc 
HP Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, HP may actually be approaching a critical reversion point that can send shares even higher in January 2023.

HP Price Channel

AAR Corp 
AAR Corp Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AAR Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward indicators, AAR Corp reported solid returns over the last few months and may actually be approaching a breakup point.

AAR Corp Price Channel

HP and AAR Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HP and AAR Corp

The main advantage of trading using opposite HP and AAR Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, AAR Corp 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 AAR Corp will offset losses from the drop in AAR Corp's long position.
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The idea behind HP Inc and AAR Corp 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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