Correlation Between Hi Tech and CEAT

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

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

Diversification Opportunities for Hi Tech and CEAT

-0.28

Correlation Coefficient

Hi Tech  CEAT

Very good diversification

The 3 months correlation between HITECH and CEAT is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Hi Tech Pipes Limited and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Hi Tech 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 Hi Tech Pipes Limited are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of Hi Tech i.e., Hi Tech and CEAT go up and down completely randomly.

Pair Corralation between Hi Tech and CEAT

Assuming the 90 days trading horizon Hi Tech Pipes Limited is expected to under-perform the CEAT. In addition to that, Hi Tech is 1.0 times more volatile than CEAT Limited. It trades about -0.17 of its total potential returns per unit of risk. CEAT Limited is currently generating about 0.02 per unit of volatility. If you would invest  302,240  in CEAT Limited on October 9, 2024 and sell it today you would earn a total of  4,780  from holding CEAT Limited or generate 1.58% return on investment over 90 days.

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

Hi Tech Pipes Limited  vs.  CEAT Limited

Hi Tech Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hi Tech Pipes Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

CEAT Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CEAT Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, CEAT is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Hi Tech and CEAT

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

The idea behind Hi Tech Pipes Limited and CEAT 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.