Correlation Between Hindustan Construction and Nazara Technologies

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

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

Diversification Opportunities for Hindustan Construction and Nazara Technologies

0.77

Correlation Coefficient

Hindustan Construction  Nazara Technologies

Poor diversification

The 3 months correlation between Hindustan and Nazara is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Construction and Nazara Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nazara Technologies 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 Nazara Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nazara Technologies has no effect on the direction of Hindustan Construction i.e., Hindustan Construction and Nazara Technologies go up and down completely randomly.

Pair Corralation between Hindustan Construction and Nazara Technologies

Assuming the 90 days trading horizon Hindustan Construction is expected to generate 1.52 times more return on investment than Nazara Technologies. However, Hindustan Construction is 1.52 times more volatile than Nazara Technologies Limited. It trades about 0.28 of its potential returns per unit of risk. Nazara Technologies Limited is currently generating about 0.19 per unit of risk. If you would invest  3,609  in Hindustan Construction on September 23, 2024 and sell it today you would earn a total of  747.00  from holding Hindustan Construction or generate 20.7% 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.  Nazara Technologies 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Nazara Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nazara Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Nazara Technologies is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hindustan Construction and Nazara Technologies

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

The idea behind Hindustan Construction and Nazara Technologies 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.