Correlation Between Altria and HP
Can any of the company-specific risk be diversified away by investing in both Altria and HP 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 Altria and HP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Altria Group and HP Inc, you can compare the effects of market volatilities on Altria and HP 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 Altria with a short position of HP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Altria and HP.
Diversification Opportunities for Altria and HP
Very weak diversification
The 3 months correlation between Altria and HP is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Altria Group and HP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HP Inc and Altria 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 Altria Group are associated (or correlated) with HP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HP Inc has no effect on the direction of Altria i.e., Altria and HP go up and down completely randomly.
Pair Corralation between Altria and HP
Allowing for the 90-day total investment horizon Altria Group is expected to generate 0.67 times more return on investment than HP. However, Altria Group is 1.5 times less risky than HP. It trades about -0.03 of its potential returns per unit of risk. HP Inc is currently generating about -0.19 per unit of risk. If you would invest 4,326 in Altria Group on January 25, 2024 and sell it today you would lose (34.00) from holding Altria Group or give up 0.79% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Altria Group vs. HP Inc
Performance |
Timeline |
Altria Group |
HP Inc |
Altria and HP Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Altria and HP
The main advantage of trading using opposite Altria and HP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Altria position performs unexpectedly, HP 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 HP will offset losses from the drop in HP's long position.Altria vs. British American Tobacco | Altria vs. Universal | Altria vs. Vector Group | Altria vs. Imperial Brands PLC |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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