Correlation Between Hindustan Construction and Coal India

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

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

Diversification Opportunities for Hindustan Construction and Coal India

0.02

Correlation Coefficient

Hindustan Construction  Coal India

Significant diversification

The 3 months correlation between Hindustan and Coal is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Construction and Coal India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coal India Limited and Hindustan Construction 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 Hindustan Construction are associated (or correlated) with Coal India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coal India Limited has no effect on the direction of Hindustan Construction i.e., Hindustan Construction and Coal India go up and down completely randomly.

Pair Corralation between Hindustan Construction and Coal India

Assuming the 90 days trading horizon Hindustan Construction is expected to generate 1.78 times more return on investment than Coal India. However, Hindustan Construction is 1.78 times more volatile than Coal India Limited. It trades about 0.08 of its potential returns per unit of risk. Coal India Limited is currently generating about 0.09 per unit of risk. If you would invest  1,425  in Hindustan Construction on October 6, 2024 and sell it today you would earn a total of  2,613  from holding Hindustan Construction or generate 183.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Hindustan Construction  vs.  Coal India Limited

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.

Coal India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coal India Limited 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 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 Hindustan Construction and Coal India

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

The idea behind Hindustan Construction and Coal India 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.