Correlation Between HP and Schwab Mid

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

By analyzing existing cross correlation between HP Inc and Schwab Mid Cap ETF, you can compare the effects of market volatilities on HP and Schwab Mid 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 Schwab Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Schwab Mid.

Diversification Opportunities for HP and Schwab Mid

0.69

Correlation Coefficient

HP  Schwab Mid

Poor diversification

The 3 months correlation between HP and Schwab is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Schwab Mid Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Mid Cap 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 Schwab Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Mid Cap has no effect on the direction of HP i.e., HP and Schwab Mid go up and down completely randomly.

Pair Corralation between HP and Schwab Mid

Considering the 90-day investment horizon HP Inc is expected to under-perform the Schwab Mid. In addition to that, HP is 1.61 times more volatile than Schwab Mid Cap ETF. It trades about -0.06 of its total potential returns per unit of risk. Schwab Mid Cap ETF is currently generating about 0.06 per unit of volatility. If you would invest  7,399  in Schwab Mid Cap ETF on January 24, 2024 and sell it today you would earn a total of  240.00  from holding Schwab Mid Cap ETF or generate 3.24% return on investment over 90 days.

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

HP Inc  vs.  Schwab Mid Cap ETF

HP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, HP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Schwab Mid Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Mid Cap ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Schwab Mid is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with HP and Schwab Mid

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

The idea behind HP Inc and Schwab Mid Cap ETF 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.