Correlation Between Hindustan Foods and Generic Engineering

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

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

Diversification Opportunities for Hindustan Foods and Generic Engineering

-0.41

Correlation Coefficient

Hindustan Foods  Generic Engineering

Very good diversification

The 3 months correlation between Hindustan and Generic is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Foods Limited and Generic Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generic Engineering and Hindustan Foods 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 Hindustan Foods Limited are associated (or correlated) with Generic Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generic Engineering has no effect on the direction of Hindustan Foods i.e., Hindustan Foods and Generic Engineering go up and down completely randomly.

Pair Corralation between Hindustan Foods and Generic Engineering

Assuming the 90 days trading horizon Hindustan Foods Limited is expected to generate 0.54 times more return on investment than Generic Engineering. However, Hindustan Foods Limited is 1.86 times less risky than Generic Engineering. It trades about 0.06 of its potential returns per unit of risk. Generic Engineering Construction is currently generating about -0.18 per unit of risk. If you would invest  51,505  in Hindustan Foods Limited on December 27, 2024 and sell it today you would earn a total of  3,655  from holding Hindustan Foods Limited or generate 7.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Hindustan Foods Limited  vs.  Generic Engineering Constructi

Hindustan Foods

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hindustan Foods Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Hindustan Foods may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Generic Engineering

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hindustan Foods and Generic Engineering

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

The idea behind Hindustan Foods Limited and Generic Engineering Construction 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.