Correlation Between Electronics Mart and Hindustan Construction

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

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

Diversification Opportunities for Electronics Mart and Hindustan Construction

0.81

Correlation Coefficient

Electronics Mart  Hindustan Construction

Very poor diversification

The 3 months correlation between Electronics and Hindustan is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Electronics Mart India and Hindustan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Construction and Electronics Mart 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 Electronics Mart 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 Electronics Mart i.e., Electronics Mart and Hindustan Construction go up and down completely randomly.

Pair Corralation between Electronics Mart and Hindustan Construction

Assuming the 90 days trading horizon Electronics Mart India is expected to under-perform the Hindustan Construction. In addition to that, Electronics Mart is 1.26 times more volatile than Hindustan Construction. It trades about -0.15 of its total potential returns per unit of risk. Hindustan Construction is currently generating about 0.16 per unit of volatility. If you would invest  3,936  in Hindustan Construction on September 3, 2024 and sell it today you would earn a total of  346.00  from holding Hindustan Construction or generate 8.79% return on investment over 90 days.

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

Electronics Mart India  vs.  Hindustan Construction

Electronics Mart India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electronics Mart India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Electronics Mart and Hindustan Construction

The main advantage of trading using opposite Electronics Mart and Hindustan Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronics Mart 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 Electronics Mart 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.