Correlation Between Hindustan Construction and Golden Tobacco

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

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

Diversification Opportunities for Hindustan Construction and Golden Tobacco

0.62

Correlation Coefficient

Hindustan Construction  Golden Tobacco

Poor diversification

The 3 months correlation between Hindustan and Golden is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Construction and Golden Tobacco Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Tobacco 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 Golden Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Tobacco has no effect on the direction of Hindustan Construction i.e., Hindustan Construction and Golden Tobacco go up and down completely randomly.

Pair Corralation between Hindustan Construction and Golden Tobacco

Assuming the 90 days trading horizon Hindustan Construction is expected to under-perform the Golden Tobacco. In addition to that, Hindustan Construction is 1.23 times more volatile than Golden Tobacco Limited. It trades about -0.04 of its total potential returns per unit of risk. Golden Tobacco Limited is currently generating about 0.05 per unit of volatility. If you would invest  3,755  in Golden Tobacco Limited on October 26, 2024 and sell it today you would earn a total of  217.00  from holding Golden Tobacco Limited or generate 5.78% return on investment over 90 days.

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

Hindustan Construction  vs.  Golden Tobacco Limited

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 latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Golden Tobacco

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Tobacco Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Golden Tobacco may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hindustan Construction and Golden Tobacco

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

The idea behind Hindustan Construction and Golden Tobacco 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 Anywhere module to track or share privately all of your investments from the convenience of any device.