Correlation Between Franchise and HR Block

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

By analyzing existing cross correlation between Franchise Group and HR Block, you can compare the effects of market volatilities on Franchise and HR Block 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 Franchise with a short position of HR Block. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franchise and HR Block.

Diversification Opportunities for Franchise and HR Block

0.18

Correlation Coefficient

Franchise  HR Block

Average diversification

The 3 months correlation between Franchise and HRB is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Franchise Group and HR Block in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HR Block and Franchise 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 Franchise Group are associated (or correlated) with HR Block. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HR Block has no effect on the direction of Franchise i.e., Franchise and HR Block go up and down completely randomly.

Pair Corralation between Franchise and HR Block

Considering the 90-day investment horizon Franchise is expected to generate 2.39 times less return on investment than HR Block. But when comparing it to its historical volatility, Franchise Group is 3.72 times less risky than HR Block. It trades about 0.21 of its potential returns per unit of risk. HR Block is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,135  in HR Block on January 24, 2024 and sell it today you would earn a total of  1,593  from holding HR Block or generate 50.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	22.33%
Values	Daily Returns

Franchise Group  vs.  HR Block

Franchise Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franchise Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Franchise is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

HR Block

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HR Block are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HR Block is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franchise and HR Block

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

The idea behind Franchise Group and HR Block 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.