Correlation Between HMT and Aarti Drugs

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

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

Diversification Opportunities for HMT and Aarti Drugs

0.86

Correlation Coefficient

HMT  Aarti Drugs

Very poor diversification

The 3 months correlation between HMT and Aarti is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding HMT Limited and Aarti Drugs Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarti Drugs Limited and HMT 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 HMT Limited are associated (or correlated) with Aarti Drugs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarti Drugs Limited has no effect on the direction of HMT i.e., HMT and Aarti Drugs go up and down completely randomly.

Pair Corralation between HMT and Aarti Drugs

Assuming the 90 days trading horizon HMT Limited is expected to under-perform the Aarti Drugs. But the stock apears to be less risky and, when comparing its historical volatility, HMT Limited is 1.66 times less risky than Aarti Drugs. The stock trades about -0.13 of its potential returns per unit of risk. The Aarti Drugs Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  45,515  in Aarti Drugs Limited on October 6, 2024 and sell it today you would lose (165.00) from holding Aarti Drugs Limited or give up 0.36% of portfolio value over 90 days.

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

HMT Limited  vs.  Aarti Drugs Limited

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 February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Aarti Drugs Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aarti Drugs Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with HMT and Aarti Drugs

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

The idea behind HMT Limited and Aarti Drugs 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.