Correlation Between HC and SLS

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

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

Diversification Opportunities for HC and SLS

1.0

Correlation Coefficient

HC  SLS

No risk reduction

The 3 months correlation between HC and SLS is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding HC and SLS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLS and HC 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 HC are associated (or correlated) with SLS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLS has no effect on the direction of HC i.e., HC and SLS go up and down completely randomly.

Pair Corralation between HC and SLS

Assuming the 90 days horizon HC is expected to generate 0.99 times more return on investment than SLS. However, HC is 1.01 times less risky than SLS. It trades about 0.21 of its potential returns per unit of risk. SLS is currently generating about 0.21 per unit of risk. If you would invest  2.34  in HC on April 22, 2025 and sell it today you would earn a total of  0.61  from holding HC or generate 26.07% return on investment over 90 days.

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

HC  vs.  SLS

HC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, HC exhibited solid returns over the last few months and may actually be approaching a breakup point.

SLS

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SLS are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SLS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HC and SLS

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

The idea behind HC and SLS 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.