Correlation Between Desktop Metal and HP

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

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

Diversification Opportunities for Desktop Metal and HP

0.05

Correlation Coefficient

Desktop Metal  HP

Significant diversification

The 3 months correlation between Desktop and HP is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Desktop Metal and HP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HP Inc and Desktop Metal 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 Desktop Metal 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 Desktop Metal i.e., Desktop Metal and HP go up and down completely randomly.

Pair Corralation between Desktop Metal and HP

Allowing for the 90-day total investment horizon Desktop Metal is expected to generate 4.62 times more return on investment than HP. However, Desktop Metal is 4.62 times more volatile than HP Inc. It trades about -0.02 of its potential returns per unit of risk. HP Inc is currently generating about -0.25 per unit of risk. If you would invest  88.00  in Desktop Metal on January 28, 2024 and sell it today you would lose (6.00) from holding Desktop Metal or give up 6.82% of portfolio value over 90 days.

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

Desktop Metal  vs.  HP Inc

Desktop Metal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Desktop Metal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Desktop Metal displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Desktop Metal and HP

The main advantage of trading using opposite Desktop Metal and HP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Desktop Metal 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.

The idea behind Desktop Metal and HP Inc 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..