Correlation Between HEG and Bombay Burmah

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

By analyzing existing cross correlation between HEG Limited and Bombay Burmah Trading, you can compare the effects of market volatilities on HEG and Bombay Burmah 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 HEG with a short position of Bombay Burmah. Check out your portfolio center. Please also check ongoing floating volatility patterns of HEG and Bombay Burmah.

Diversification Opportunities for HEG and Bombay Burmah

-0.49

Correlation Coefficient

HEG  Bombay Burmah

Very good diversification

The 3 months correlation between HEG and Bombay is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding HEG Limited and Bombay Burmah Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bombay Burmah Trading and HEG 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 HEG Limited are associated (or correlated) with Bombay Burmah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bombay Burmah Trading has no effect on the direction of HEG i.e., HEG and Bombay Burmah go up and down completely randomly.

Pair Corralation between HEG and Bombay Burmah

Assuming the 90 days trading horizon HEG Limited is expected to generate 68.37 times more return on investment than Bombay Burmah. However, HEG is 68.37 times more volatile than Bombay Burmah Trading. It trades about 0.2 of its potential returns per unit of risk. Bombay Burmah Trading is currently generating about 0.08 per unit of risk. If you would invest  18,083  in HEG Limited on September 21, 2024 and sell it today you would earn a total of  38,702  from holding HEG Limited or generate 214.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.67%
Values	Daily Returns

HEG Limited  vs.  Bombay Burmah Trading

HEG Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, HEG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Bombay Burmah Trading

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bombay Burmah Trading has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with HEG and Bombay Burmah

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

The idea behind HEG Limited and Bombay Burmah Trading 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.