Correlation Between Hindustan Construction and NIIT

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

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

Diversification Opportunities for Hindustan Construction and NIIT

0.5

Correlation Coefficient

Hindustan Construction  NIIT

Very weak diversification

The 3 months correlation between Hindustan and NIIT is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Construction and NIIT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIIT 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 NIIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIIT Limited has no effect on the direction of Hindustan Construction i.e., Hindustan Construction and NIIT go up and down completely randomly.

Pair Corralation between Hindustan Construction and NIIT

Assuming the 90 days trading horizon Hindustan Construction is expected to generate 4.17 times less return on investment than NIIT. But when comparing it to its historical volatility, Hindustan Construction is 1.23 times less risky than NIIT. It trades about 0.02 of its potential returns per unit of risk. NIIT Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  16,152  in NIIT Limited on October 8, 2024 and sell it today you would earn a total of  2,228  from holding NIIT Limited or generate 13.79% return on investment over 90 days.

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

Hindustan Construction  vs.  NIIT Limited

Hindustan Construction

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hindustan Construction are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Hindustan Construction is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

NIIT Limited

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NIIT Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, NIIT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hindustan Construction and NIIT

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

The idea behind Hindustan Construction and NIIT 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.