Correlation Between Bharti Airtel and HMT

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

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

Diversification Opportunities for Bharti Airtel and HMT

0.74

Correlation Coefficient

Bharti Airtel  HMT

Poor diversification

The 3 months correlation between Bharti and HMT is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Bharti Airtel Limited and HMT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMT Limited and Bharti Airtel 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 Bharti Airtel Limited are associated (or correlated) with HMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMT Limited has no effect on the direction of Bharti Airtel i.e., Bharti Airtel and HMT go up and down completely randomly.

Pair Corralation between Bharti Airtel and HMT

Assuming the 90 days trading horizon Bharti Airtel is expected to generate 1.26 times less return on investment than HMT. But when comparing it to its historical volatility, Bharti Airtel Limited is 2.19 times less risky than HMT. It trades about 0.14 of its potential returns per unit of risk. HMT Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,050  in HMT Limited on October 3, 2024 and sell it today you would earn a total of  3,158  from holding HMT Limited or generate 103.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.48%
Values	Daily Returns

Bharti Airtel Limited  vs.  HMT Limited

Bharti Airtel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bharti Airtel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bharti Airtel is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

HMT Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HMT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Bharti Airtel and HMT

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

The idea behind Bharti Airtel Limited and HMT Limited 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.