Correlation Between Hi Tech and Masood Textile

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

By analyzing existing cross correlation between Hi Tech Lubricants and Masood Textile Mills, you can compare the effects of market volatilities on Hi Tech and Masood Textile 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 Hi Tech with a short position of Masood Textile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hi Tech and Masood Textile.

Diversification Opportunities for Hi Tech and Masood Textile

-0.44

Correlation Coefficient

Hi Tech  Masood Textile

Very good diversification

The 3 months correlation between HTL and Masood is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Hi Tech Lubricants and Masood Textile Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masood Textile Mills and Hi Tech 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 Hi Tech Lubricants are associated (or correlated) with Masood Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masood Textile Mills has no effect on the direction of Hi Tech i.e., Hi Tech and Masood Textile go up and down completely randomly.

Pair Corralation between Hi Tech and Masood Textile

Assuming the 90 days trading horizon Hi Tech Lubricants is expected to generate 1.11 times more return on investment than Masood Textile. However, Hi Tech is 1.11 times more volatile than Masood Textile Mills. It trades about 0.4 of its potential returns per unit of risk. Masood Textile Mills is currently generating about 0.38 per unit of risk. If you would invest  3,858  in Hi Tech Lubricants on September 5, 2024 and sell it today you would earn a total of  1,782  from holding Hi Tech Lubricants or generate 46.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	73.91%
Values	Daily Returns

Hi Tech Lubricants  vs.  Masood Textile Mills

Hi Tech Lubricants

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Tech Lubricants are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Hi Tech reported solid returns over the last few months and may actually be approaching a breakup point.

Masood Textile Mills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masood Textile Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Masood Textile is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hi Tech and Masood Textile

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

The idea behind Hi Tech Lubricants and Masood Textile Mills 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.