diversifiable risk of combining HP and Desktop Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Desktop Metal, you can compare the effects of market volatilities on HP and Desktop Metal 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 Desktop Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Desktop Metal.
Diversification Opportunities for HP and Desktop Metal
Pair Corralation between HP and Desktop Metal
Considering the 90-day investment horizon HP Inc is expected to generate 0.16 times more return on investment than Desktop Metal. However, HP Inc is 6.22 times less risky than Desktop Metal. It trades about -0.05 of its potential returns per unit of risk. Desktop Metal is currently generating about -0.01 per unit of risk. If you would invest 2,915 in HP Inc on December 1, 2023 and sell it today you would lose (43.00) from holding HP Inc or give up 1.48% of portfolio value over 90 days.
HP Inc vs. Desktop Metal
Pair Trading with HP and Desktop MetalThe main advantage of trading using opposite HP and Desktop Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Desktop Metal 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 Desktop Metal will offset losses from the drop in Desktop Metal's long position. The idea behind HP Inc and Desktop Metal 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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