Correlation Between Hindustan Construction and Garware Hi-Tech

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

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

Diversification Opportunities for Hindustan Construction and Garware Hi-Tech

0.59

Correlation Coefficient

Hindustan Construction  Garware Hi-Tech

Very weak diversification

The 3 months correlation between Hindustan and Garware is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Construction and Garware Hi Tech Films in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garware Hi Tech 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 Garware Hi-Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garware Hi Tech has no effect on the direction of Hindustan Construction i.e., Hindustan Construction and Garware Hi-Tech go up and down completely randomly.

Pair Corralation between Hindustan Construction and Garware Hi-Tech

Assuming the 90 days trading horizon Hindustan Construction is expected to under-perform the Garware Hi-Tech. But the stock apears to be less risky and, when comparing its historical volatility, Hindustan Construction is 1.09 times less risky than Garware Hi-Tech. The stock trades about -0.13 of its potential returns per unit of risk. The Garware Hi Tech Films is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  527,475  in Garware Hi Tech Films on December 26, 2024 and sell it today you would lose (129,945) from holding Garware Hi Tech Films or give up 24.64% of portfolio value over 90 days.

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

Hindustan Construction  vs.  Garware Hi Tech Films

Hindustan Construction

Risk-Adjusted Performance

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 unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Garware Hi Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Garware Hi Tech Films 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 comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Hindustan Construction and Garware Hi-Tech

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

The idea behind Hindustan Construction and Garware Hi Tech Films 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.