Correlation Between Hi Tech and HMT

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

By analyzing existing cross correlation between The Hi Tech Gears and HMT Limited, you can compare the effects of market volatilities on Hi Tech and HMT 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 HMT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hi Tech and HMT.

Diversification Opportunities for Hi Tech and HMT

0.64

Correlation Coefficient

Hi Tech  HMT

Poor diversification

The 3 months correlation between HITECHGEAR and HMT is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Hi Tech Gears and HMT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMT 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 The Hi Tech Gears are associated (or correlated) with HMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMT Limited has no effect on the direction of Hi Tech i.e., Hi Tech and HMT go up and down completely randomly.

Pair Corralation between Hi Tech and HMT

Assuming the 90 days trading horizon The Hi Tech Gears is expected to generate 0.93 times more return on investment than HMT. However, The Hi Tech Gears is 1.07 times less risky than HMT. It trades about 0.0 of its potential returns per unit of risk. HMT Limited is currently generating about -0.14 per unit of risk. If you would invest  86,722  in The Hi Tech Gears on September 12, 2024 and sell it today you would lose (927.00) from holding The Hi Tech Gears or give up 1.07% of portfolio value over 90 days.

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

The Hi Tech Gears  vs.  HMT Limited

Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Hi Tech Gears has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Hi Tech is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

HMT Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HMT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Hi Tech and HMT

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

The idea behind The Hi Tech Gears and HMT 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.