Correlation Between HP and Federal National

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

Diversification Opportunities for HP and Federal National

0.01
  Correlation Coefficient

Significant diversification

The 3 months correlation between HP and Federal is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage 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 Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of HP i.e., HP and Federal National go up and down completely randomly.

Pair Corralation between HP and Federal National

Considering the 90-day investment horizon HP is expected to generate 2.85 times less return on investment than Federal National. But when comparing it to its historical volatility, HP Inc is 2.77 times less risky than Federal National. It trades about 0.21 of its potential returns per unit of risk. Federal National Mortgage is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,020,000  in Federal National Mortgage on December 30, 2023 and sell it today you would earn a total of  180,000  from holding Federal National Mortgage or generate 17.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

HP Inc  vs.  Federal National Mortgage

 Performance 
       Timeline  
HP Inc 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, HP is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.
Federal National Mortgage 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Federal National displayed solid returns over the last few months and may actually be approaching a breakup point.

HP and Federal National Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HP and Federal National

The main advantage of trading using opposite HP and Federal National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Federal National 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 Federal National will offset losses from the drop in Federal National's long position.
The idea behind HP Inc and Federal National Mortgage 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.
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 the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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