Correlation Between HP and Salesforce

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

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

Diversification Opportunities for HP and Salesforce

0.69

Correlation Coefficient

HP  Salesforce

Poor diversification

The 3 months correlation between HP and Salesforce is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce and HP 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 HP Inc are associated (or correlated) with Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of HP i.e., HP and Salesforce go up and down completely randomly.

Pair Corralation between HP and Salesforce

Considering the 90-day investment horizon HP Inc is expected to under-perform the Salesforce. But the stock apears to be less risky and, when comparing its historical volatility, HP Inc is 1.2 times less risky than Salesforce. The stock trades about -0.02 of its potential returns per unit of risk. The Salesforce is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  18,894  in Salesforce on January 29, 2024 and sell it today you would earn a total of  8,535  from holding Salesforce or generate 45.17% return on investment over 90 days.

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

HP Inc  vs.  Salesforce

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 recent stock price agitation, may contribute to short-term losses for the retail investors.

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Salesforce is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with HP and Salesforce

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

The idea behind HP Inc and Salesforce 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.