Correlation Between Hindcon Chemicals and LT Foods

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

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

Diversification Opportunities for Hindcon Chemicals and LT Foods

0.73

Correlation Coefficient

Hindcon Chemicals  LT Foods

Poor diversification

The 3 months correlation between Hindcon and LTFOODS is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Hindcon Chemicals Limited and LT Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LT Foods Limited and Hindcon Chemicals 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 Hindcon Chemicals Limited are associated (or correlated) with LT Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LT Foods Limited has no effect on the direction of Hindcon Chemicals i.e., Hindcon Chemicals and LT Foods go up and down completely randomly.

Pair Corralation between Hindcon Chemicals and LT Foods

Assuming the 90 days trading horizon Hindcon Chemicals Limited is expected to under-perform the LT Foods. In addition to that, Hindcon Chemicals is 1.32 times more volatile than LT Foods Limited. It trades about -0.01 of its total potential returns per unit of risk. LT Foods Limited is currently generating about 0.16 per unit of volatility. If you would invest  25,725  in LT Foods Limited on October 4, 2024 and sell it today you would earn a total of  16,185  from holding LT Foods Limited or generate 62.92% return on investment over 90 days.

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

Hindcon Chemicals Limited  vs.  LT Foods Limited

Hindcon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

LT Foods Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LT Foods Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, LT Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hindcon Chemicals and LT Foods

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

The idea behind Hindcon Chemicals Limited and LT Foods 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.