Correlation Between Air Canada and HPQ Silicon

Can any of the company-specific risk be diversified away by investing in both Air Canada and HPQ Silicon 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 Air Canada and HPQ Silicon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Canada and HPQ Silicon Resources, you can compare the effects of market volatilities on Air Canada and HPQ Silicon 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 Air Canada with a short position of HPQ Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Canada and HPQ Silicon.

Diversification Opportunities for Air Canada and HPQ Silicon

-0.57

Correlation Coefficient

Air Canada  HPQ Silicon

Excellent diversification

The 3 months correlation between Air and HPQ is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and HPQ Silicon Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HPQ Silicon Resources and Air Canada 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 Air Canada are associated (or correlated) with HPQ Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HPQ Silicon Resources has no effect on the direction of Air Canada i.e., Air Canada and HPQ Silicon go up and down completely randomly.

Pair Corralation between Air Canada and HPQ Silicon

Assuming the 90 days horizon Air Canada is expected to generate 0.47 times more return on investment than HPQ Silicon. However, Air Canada is 2.15 times less risky than HPQ Silicon. It trades about 0.08 of its potential returns per unit of risk. HPQ Silicon Resources is currently generating about -0.02 per unit of risk. If you would invest  1,806  in Air Canada on January 20, 2024 and sell it today you would earn a total of  152.00  from holding Air Canada or generate 8.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Air Canada  vs.  HPQ Silicon Resources

Air Canada

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Air Canada may actually be approaching a critical reversion point that can send shares even higher in May 2024.

HPQ Silicon Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HPQ Silicon Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, HPQ Silicon is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Air Canada and HPQ Silicon

The main advantage of trading using opposite Air Canada and HPQ Silicon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Canada position performs unexpectedly, HPQ Silicon 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 HPQ Silicon will offset losses from the drop in HPQ Silicon's long position.

The idea behind Air Canada and HPQ Silicon Resources 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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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.