Correlation Between NEW WORLD and Hufvudstaden

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

By analyzing existing cross correlation between NEW WORLD DEVCO and Hufvudstaden AB, you can compare the effects of market volatilities on NEW WORLD and Hufvudstaden 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 NEW WORLD with a short position of Hufvudstaden. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEW WORLD and Hufvudstaden.

Diversification Opportunities for NEW WORLD and Hufvudstaden

0.79

Correlation Coefficient

NEW WORLD  Hufvudstaden

Poor diversification

The 3 months correlation between NEW and Hufvudstaden is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding NEW WORLD DEVCO and Hufvudstaden AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hufvudstaden AB and NEW WORLD 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 NEW WORLD DEVCO are associated (or correlated) with Hufvudstaden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hufvudstaden AB has no effect on the direction of NEW WORLD i.e., NEW WORLD and Hufvudstaden go up and down completely randomly.

Pair Corralation between NEW WORLD and Hufvudstaden

Assuming the 90 days trading horizon NEW WORLD DEVCO is expected to under-perform the Hufvudstaden. In addition to that, NEW WORLD is 1.33 times more volatile than Hufvudstaden AB. It trades about -0.04 of its total potential returns per unit of risk. Hufvudstaden AB is currently generating about 0.03 per unit of volatility. If you would invest  776.00  in Hufvudstaden AB on September 23, 2024 and sell it today you would earn a total of  239.00  from holding Hufvudstaden AB or generate 30.8% return on investment over 90 days.

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

NEW WORLD DEVCO  vs.  Hufvudstaden AB

NEW WORLD DEVCO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEW WORLD DEVCO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Hufvudstaden AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hufvudstaden AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with NEW WORLD and Hufvudstaden

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

The idea behind NEW WORLD DEVCO and Hufvudstaden AB 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.