Correlation Between HMT and VA Tech

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

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

Diversification Opportunities for HMT and VA Tech

-0.77

Correlation Coefficient

HMT  VA Tech

Pay attention - limited upside

The 3 months correlation between HMT and WABAG is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding HMT Limited and VA Tech Wabag in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VA Tech Wabag 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 VA Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VA Tech Wabag has no effect on the direction of HMT i.e., HMT and VA Tech go up and down completely randomly.

Pair Corralation between HMT and VA Tech

Assuming the 90 days trading horizon HMT Limited is expected to under-perform the VA Tech. In addition to that, HMT is 1.05 times more volatile than VA Tech Wabag. It trades about -0.15 of its total potential returns per unit of risk. VA Tech Wabag is currently generating about 0.17 per unit of volatility. If you would invest  172,810  in VA Tech Wabag on September 5, 2024 and sell it today you would earn a total of  13,395  from holding VA Tech Wabag or generate 7.75% return on investment over 90 days.

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

HMT Limited  vs.  VA Tech Wabag

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 unsteady 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.

VA Tech Wabag

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, VA Tech displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HMT and VA Tech

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

The idea behind HMT Limited and VA Tech Wabag 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.