Correlation Between HDFC Asset and MIC Electronics

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

By analyzing existing cross correlation between HDFC Asset Management and MIC Electronics Limited, you can compare the effects of market volatilities on HDFC Asset and MIC Electronics 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 HDFC Asset with a short position of MIC Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of HDFC Asset and MIC Electronics.

Diversification Opportunities for HDFC Asset and MIC Electronics

0.39

Correlation Coefficient

HDFC Asset  MIC Electronics

Weak diversification

The 3 months correlation between HDFC and MIC is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management and MIC Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MIC Electronics and HDFC Asset 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 HDFC Asset Management are associated (or correlated) with MIC Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MIC Electronics has no effect on the direction of HDFC Asset i.e., HDFC Asset and MIC Electronics go up and down completely randomly.

Pair Corralation between HDFC Asset and MIC Electronics

Assuming the 90 days trading horizon HDFC Asset is expected to generate 3.58 times less return on investment than MIC Electronics. But when comparing it to its historical volatility, HDFC Asset Management is 1.71 times less risky than MIC Electronics. It trades about 0.06 of its potential returns per unit of risk. MIC Electronics Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,665  in MIC Electronics Limited on October 6, 2024 and sell it today you would earn a total of  5,017  from holding MIC Electronics Limited or generate 136.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.59%
Values	Daily Returns

HDFC Asset Management  vs.  MIC Electronics Limited

HDFC Asset Management

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Asset Management are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, HDFC Asset is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

MIC Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MIC Electronics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, MIC Electronics is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with HDFC Asset and MIC Electronics

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

The idea behind HDFC Asset Management and MIC Electronics 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.