Correlation Between HP and Big 5

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Can any of the company-specific risk be diversified away by investing in both HP and Big 5 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 Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Big 5 Sporting, you can compare the effects of market volatilities on HP and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Big 5.

Diversification Opportunities for HP and Big 5

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between HP and Big 5 is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of HP i.e., HP and Big 5 go up and down completely randomly.

Pair Corralation between HP and Big 5

Considering the 90-day investment horizon HP is expected to generate 2.66 times less return on investment than Big 5. But when comparing it to its historical volatility, HP Inc is 2.07 times less risky than Big 5. It trades about 0.04 of its potential returns per unit of risk. Big 5 Sporting is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  679.00  in Big 5 Sporting on September 4, 2022 and sell it today you would earn a total of  525.00  from holding Big 5 Sporting or generate 77.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

HP Inc  vs.  Big 5 Sporting

 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

Big 5 Sporting 
Big 5 Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Big 5 may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Big 5 Price Channel

HP and Big 5 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HP and Big 5

The main advantage of trading using opposite HP and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.
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The idea behind HP Inc and Big 5 Sporting 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 CEO Directory module to screen CEOs from public companies around the world.

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