Correlation Between United Tractors and Hanover Foods

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

By analyzing existing cross correlation between United Tractors Tbk and Hanover Foods, you can compare the effects of market volatilities on United Tractors and Hanover Foods 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 United Tractors with a short position of Hanover Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Tractors and Hanover Foods.

Diversification Opportunities for United Tractors and Hanover Foods

0.81

Correlation Coefficient

United Tractors  Hanover Foods

Very poor diversification

The 3 months correlation between United and Hanover is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding United Tractors Tbk and Hanover Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanover Foods and United Tractors 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 United Tractors Tbk are associated (or correlated) with Hanover Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanover Foods has no effect on the direction of United Tractors i.e., United Tractors and Hanover Foods go up and down completely randomly.

Pair Corralation between United Tractors and Hanover Foods

If you would invest  3,212  in United Tractors Tbk on June 12, 2024 and sell it today you would earn a total of  297.00  from holding United Tractors Tbk or generate 9.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	5.0%
Values	Daily Returns

United Tractors Tbk  vs.  Hanover Foods

United Tractors Tbk

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Tractors Tbk are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, United Tractors showed solid returns over the last few months and may actually be approaching a breakup point.

Hanover Foods

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Hanover Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hanover Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Tractors and Hanover Foods

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

The idea behind United Tractors Tbk and Hanover Foods 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.