Correlation Between THR and HEDG
Can any of the company-specific risk be diversified away by investing in both THR and HEDG 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 THR and HEDG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between THR and HEDG, you can compare the effects of market volatilities on THR and HEDG 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 THR with a short position of HEDG. Check out your portfolio center. Please also check ongoing floating volatility patterns of THR and HEDG.
Diversification Opportunities for THR and HEDG
Average diversification
The 3 months correlation between THR and HEDG is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding THR and HEDG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEDG and THR 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 THR are associated (or correlated) with HEDG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEDG has no effect on the direction of THR i.e., THR and HEDG go up and down completely randomly.
Pair Corralation between THR and HEDG
If you would invest 3.87 in HEDG on January 19, 2024 and sell it today you would lose (0.35) from holding HEDG or give up 9.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 4.35% |
| Values | Daily Returns |
THR vs. HEDG
Performance |
| Timeline |
| THR |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| HEDG |
THR and HEDG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with THR and HEDG
The main advantage of trading using opposite THR and HEDG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if THR position performs unexpectedly, HEDG 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 HEDG will offset losses from the drop in HEDG's long position.The idea behind THR and HEDG 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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