Correlation Between Hindustan Construction and India Glycols

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

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

Diversification Opportunities for Hindustan Construction and India Glycols

0.72

Correlation Coefficient

Hindustan Construction  India Glycols

Poor diversification

The 3 months correlation between Hindustan and India is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Construction and India Glycols Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on India Glycols 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 India Glycols. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of India Glycols Limited has no effect on the direction of Hindustan Construction i.e., Hindustan Construction and India Glycols go up and down completely randomly.

Pair Corralation between Hindustan Construction and India Glycols

Assuming the 90 days trading horizon Hindustan Construction is expected to under-perform the India Glycols. But the stock apears to be less risky and, when comparing its historical volatility, Hindustan Construction is 1.08 times less risky than India Glycols. The stock trades about -0.02 of its potential returns per unit of risk. The India Glycols Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  122,790  in India Glycols Limited on September 28, 2024 and sell it today you would earn a total of  4,515  from holding India Glycols Limited or generate 3.68% 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.  India Glycols 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 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.

India Glycols Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in India Glycols Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, India Glycols may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hindustan Construction and India Glycols

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

The idea behind Hindustan Construction and India Glycols 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.