Can any of the company-specific risk be diversified away by investing in both Hudson Pacific and Black Hills 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 Hudson Pacific and Black Hills into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hudson Pacific Properties and Black Hills, you can compare the effects of market volatilities on Hudson Pacific and Black Hills 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 Hudson Pacific with a short position of Black Hills. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hudson Pacific and Black Hills.
Diversification Opportunities for Hudson Pacific and Black Hills
The 3 months correlation between Hudson and Black is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Hudson Pacific Properties and Black Hills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Hills and Hudson Pacific 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 Hudson Pacific Properties are associated (or correlated) with Black Hills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Hills has no effect on the direction of Hudson Pacific i.e., Hudson Pacific and Black Hills go up and down completely randomly.
Pair Corralation between Hudson Pacific and Black Hills
Considering the 90-day investment horizon Hudson Pacific Properties is expected to under-perform the Black Hills. In addition to that, Hudson Pacific is 2.94 times more volatile than Black Hills. It trades about -0.17 of its total potential returns per unit of risk. Black Hills is currently generating about 0.04 per unit of volatility. If you would invest 5,583 in Black Hills on March 6, 2024 and sell it today you would earn a total of 51.00 from holding Black Hills or generate 0.91% return on investment over 90 days.
Over the last 90 days Hudson Pacific Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady 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.
Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward-looking signals, Black Hills may actually be approaching a critical reversion point that can send shares even higher in July 2024.