Correlation Between Hindalco Industries and Welspun Investments

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

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

Diversification Opportunities for Hindalco Industries and Welspun Investments

-0.23

Correlation Coefficient

Hindalco Industries  Welspun Investments

Very good diversification

The 3 months correlation between Hindalco and Welspun is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Hindalco Industries Limited and Welspun Investments and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Welspun Investments and and Hindalco Industries 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 Hindalco Industries Limited are associated (or correlated) with Welspun Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Welspun Investments and has no effect on the direction of Hindalco Industries i.e., Hindalco Industries and Welspun Investments go up and down completely randomly.

Pair Corralation between Hindalco Industries and Welspun Investments

Assuming the 90 days trading horizon Hindalco Industries Limited is expected to generate 0.34 times more return on investment than Welspun Investments. However, Hindalco Industries Limited is 2.94 times less risky than Welspun Investments. It trades about 0.11 of its potential returns per unit of risk. Welspun Investments and is currently generating about -0.02 per unit of risk. If you would invest  61,740  in Hindalco Industries Limited on December 27, 2024 and sell it today you would earn a total of  7,595  from holding Hindalco Industries Limited or generate 12.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Hindalco Industries Limited  vs.  Welspun Investments and

Hindalco Industries

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hindalco Industries Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Hindalco Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Welspun Investments and

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hindalco Industries and Welspun Investments

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

The idea behind Hindalco Industries Limited and Welspun Investments and 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.