Correlation Between Central Bank and Hindustan Construction

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

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

Diversification Opportunities for Central Bank and Hindustan Construction

0.77

Correlation Coefficient

Central Bank  Hindustan Construction

Poor diversification

The 3 months correlation between Central and Hindustan is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Central Bank of and Hindustan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Construction and Central Bank 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 Central Bank of 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 Central Bank i.e., Central Bank and Hindustan Construction go up and down completely randomly.

Pair Corralation between Central Bank and Hindustan Construction

Assuming the 90 days trading horizon Central Bank is expected to generate 5.7 times less return on investment than Hindustan Construction. But when comparing it to its historical volatility, Central Bank of is 1.31 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  3,756  in Hindustan Construction on October 6, 2024 and sell it today you would earn a total of  282.00  from holding Hindustan Construction or generate 7.51% return on investment over 90 days.

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

Central Bank of  vs.  Hindustan Construction

Central Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Central Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Hindustan Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hindustan Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Hindustan Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Central Bank and Hindustan Construction

The main advantage of trading using opposite Central Bank and Hindustan Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Bank 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 Central Bank of 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.