Correlation Between HMT and CEAT

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

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

Diversification Opportunities for HMT and CEAT

0.79

Correlation Coefficient

HMT  CEAT

Poor diversification

The 3 months correlation between HMT and CEAT is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding HMT Limited and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT 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 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 HMT i.e., HMT and CEAT go up and down completely randomly.

Pair Corralation between HMT and CEAT

Assuming the 90 days trading horizon HMT Limited is expected to under-perform the CEAT. In addition to that, HMT is 1.17 times more volatile than CEAT Limited. It trades about -0.16 of its total potential returns per unit of risk. CEAT Limited is currently generating about -0.08 per unit of volatility. If you would invest  325,345  in CEAT Limited on December 27, 2024 and sell it today you would lose (41,395) from holding CEAT Limited or give up 12.72% of portfolio value over 90 days.

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

HMT Limited  vs.  CEAT Limited

HMT Limited

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

CEAT Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CEAT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with HMT and CEAT

The main advantage of trading using opposite HMT and CEAT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HMT 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 HMT 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.