Correlation Between Agro Phos and Hindustan Construction

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

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

Diversification Opportunities for Agro Phos and Hindustan Construction

0.19

Correlation Coefficient

Agro Phos  Hindustan Construction

Average diversification

The 3 months correlation between Agro and Hindustan is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Agro Phos India and Hindustan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Construction and Agro Phos 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 Agro Phos India are associated (or correlated) with Hindustan Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindustan Construction has no effect on the direction of Agro Phos i.e., Agro Phos and Hindustan Construction go up and down completely randomly.

Pair Corralation between Agro Phos and Hindustan Construction

Assuming the 90 days trading horizon Agro Phos is expected to generate 4.0 times less return on investment than Hindustan Construction. But when comparing it to its historical volatility, Agro Phos India is 1.15 times less risky than Hindustan Construction. It trades about 0.01 of its potential returns per unit of risk. Hindustan Construction is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,070  in Hindustan Construction on October 9, 2024 and sell it today you would earn a total of  1,680  from holding Hindustan Construction or generate 81.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

Agro Phos India  vs.  Hindustan Construction

Agro Phos India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Agro Phos India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Hindustan Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hindustan Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Hindustan Construction is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Agro Phos and Hindustan Construction

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

The idea behind Agro Phos India and Hindustan Construction 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.