Can any of the company-specific risk be diversified away by investing in both ASOS Plc and Hour Loop 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 ASOS Plc and Hour Loop into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ASOS Plc and Hour Loop, you can compare the effects of market volatilities on ASOS Plc and Hour Loop 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 ASOS Plc with a short position of Hour Loop. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASOS Plc and Hour Loop.
Diversification Opportunities for ASOS Plc and Hour Loop
The 3 months correlation between ASOS and Hour is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding ASOS Plc and Hour Loop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hour Loop and ASOS Plc 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 ASOS Plc are associated (or correlated) with Hour Loop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hour Loop has no effect on the direction of ASOS Plc i.e., ASOS Plc and Hour Loop go up and down completely randomly.
Assuming the 90 days horizon ASOS Plc is expected to under-perform the Hour Loop. In addition to that, ASOS Plc is 1.09 times more volatile than Hour Loop. It trades about -0.03 of its total potential returns per unit of risk. Hour Loop is currently generating about -0.02 per unit of volatility. If you would invest 290.00 in Hour Loop on March 6, 2024 and sell it today you would lose (182.00) from holding Hour Loop or give up 62.76% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in ASOS Plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, ASOS Plc is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.
Over the last 90 days Hour Loop has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.