Correlation Between Hindustan Foods and VA Tech

Can any of the company-specific risk be diversified away by investing in both Hindustan Foods 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 Hindustan Foods and VA Tech 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 VA Tech Wabag, you can compare the effects of market volatilities on Hindustan Foods 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 Hindustan Foods with a short position of VA Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hindustan Foods and VA Tech.

Diversification Opportunities for Hindustan Foods and VA Tech

-0.4

Correlation Coefficient

Hindustan Foods  VA Tech

Very good diversification

The 3 months correlation between Hindustan and WABAG is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Foods 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 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 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 Hindustan Foods i.e., Hindustan Foods and VA Tech go up and down completely randomly.

Pair Corralation between Hindustan Foods and VA Tech

Assuming the 90 days trading horizon Hindustan Foods Limited is expected to under-perform the VA Tech. But the stock apears to be less risky and, when comparing its historical volatility, Hindustan Foods Limited is 1.71 times less risky than VA Tech. The stock trades about 0.0 of its potential returns per unit of risk. The VA Tech Wabag is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  32,410  in VA Tech Wabag on September 29, 2024 and sell it today you would earn a total of  132,210  from holding VA Tech Wabag or generate 407.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.57%
Values	Daily Returns

Hindustan Foods Limited  vs.  VA Tech Wabag

Hindustan Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hindustan Foods Limited 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 technical and fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

VA Tech Wabag

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental drivers, VA Tech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hindustan Foods and VA Tech

The main advantage of trading using opposite Hindustan Foods and VA Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hindustan Foods 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 Hindustan Foods 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.