Correlation Between Hisar Metal and United Breweries

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

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

Diversification Opportunities for Hisar Metal and United Breweries

0.73

Correlation Coefficient

Hisar Metal  United Breweries

Poor diversification

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

Pair Corralation between Hisar Metal and United Breweries

Assuming the 90 days trading horizon Hisar Metal Industries is expected to generate 2.3 times more return on investment than United Breweries. However, Hisar Metal is 2.3 times more volatile than United Breweries Limited. It trades about 0.17 of its potential returns per unit of risk. United Breweries Limited is currently generating about 0.17 per unit of risk. If you would invest  18,083  in Hisar Metal Industries on October 6, 2024 and sell it today you would earn a total of  3,918  from holding Hisar Metal Industries or generate 21.67% return on investment over 90 days.

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

Hisar Metal Industries  vs.  United Breweries Limited

Hisar Metal Industries

Risk-Adjusted Performance

8 of 100

OK

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

United Breweries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Breweries Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, United Breweries is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Hisar Metal and United Breweries

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

The idea behind Hisar Metal Industries and United Breweries 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.