Correlation Between HP and ADC Therapeutics

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

By analyzing existing cross correlation between HP Inc and ADC Therapeutics SA, you can compare the effects of market volatilities on HP and ADC Therapeutics 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 HP with a short position of ADC Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and ADC Therapeutics.

Diversification Opportunities for HP and ADC Therapeutics

-0.83

Correlation Coefficient

HP  ADC Therapeutics

Pay attention - limited upside

The 3 months correlation between HP and ADC is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and ADC Therapeutics SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADC Therapeutics and HP 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 HP Inc are associated (or correlated) with ADC Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADC Therapeutics has no effect on the direction of HP i.e., HP and ADC Therapeutics go up and down completely randomly.

Pair Corralation between HP and ADC Therapeutics

Considering the 90-day investment horizon HP is expected to generate 7.18 times less return on investment than ADC Therapeutics. But when comparing it to its historical volatility, HP Inc is 4.09 times less risky than ADC Therapeutics. It trades about 0.09 of its potential returns per unit of risk. ADC Therapeutics SA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  103.00  in ADC Therapeutics SA on March 11, 2024 and sell it today you would earn a total of  239.00  from holding ADC Therapeutics SA or generate 232.04% return on investment over 90 days.

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

HP Inc  vs.  ADC Therapeutics SA

HP Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, HP reported solid returns over the last few months and may actually be approaching a breakup point.

ADC Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADC Therapeutics SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with HP and ADC Therapeutics

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

The idea behind HP Inc and ADC Therapeutics SA 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.