Correlation Between HC and XWC

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

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

Diversification Opportunities for HC and XWC

0.95

Correlation Coefficient

HC  XWC

Almost no diversification

The 3 months correlation between HC and XWC is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding HC and XWC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XWC 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 XWC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XWC has no effect on the direction of HC i.e., HC and XWC go up and down completely randomly.

Pair Corralation between HC and XWC

Assuming the 90 days horizon HC is expected to generate 1.01 times less return on investment than XWC. In addition to that, HC is 1.0 times more volatile than XWC. It trades about 0.21 of its total potential returns per unit of risk. XWC is currently generating about 0.21 per unit of volatility. If you would invest  3.29  in XWC on April 23, 2025 and sell it today you would earn a total of  0.84  from holding XWC or generate 25.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

HC  vs.  XWC

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.

XWC

Risk-Adjusted Performance

Solid

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

Pair Trading with HC and XWC

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

The idea behind HC and XWC 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.