Correlation Between Hilton Metal and Salzer Electronics

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

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

Diversification Opportunities for Hilton Metal and Salzer Electronics

0.83

Correlation Coefficient

Hilton Metal  Salzer Electronics

Very poor diversification

The 3 months correlation between Hilton and Salzer is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Hilton Metal Forging and Salzer Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salzer Electronics and Hilton Metal 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 Hilton Metal Forging are associated (or correlated) with Salzer Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salzer Electronics has no effect on the direction of Hilton Metal i.e., Hilton Metal and Salzer Electronics go up and down completely randomly.

Pair Corralation between Hilton Metal and Salzer Electronics

Assuming the 90 days trading horizon Hilton Metal is expected to generate 1.54 times less return on investment than Salzer Electronics. But when comparing it to its historical volatility, Hilton Metal Forging is 1.33 times less risky than Salzer Electronics. It trades about 0.24 of its potential returns per unit of risk. Salzer Electronics Limited is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  104,380  in Salzer Electronics Limited on September 27, 2024 and sell it today you would earn a total of  46,205  from holding Salzer Electronics Limited or generate 44.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.67%
Values	Daily Returns

Hilton Metal Forging  vs.  Salzer Electronics Limited

Hilton Metal Forging

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hilton Metal Forging are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Hilton Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Salzer Electronics

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Salzer Electronics Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, Salzer Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hilton Metal and Salzer Electronics

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

The idea behind Hilton Metal Forging and Salzer 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.