Correlation Between Hi Tech and Orient Rental

Can any of the company-specific risk be diversified away by investing in both Hi Tech and Orient Rental 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 Orient Rental 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 Orient Rental Modaraba, you can compare the effects of market volatilities on Hi Tech and Orient Rental 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 Orient Rental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hi Tech and Orient Rental.

Diversification Opportunities for Hi Tech and Orient Rental

0.75

Correlation Coefficient

Hi Tech  Orient Rental

Poor diversification

The 3 months correlation between HTL and Orient is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Hi Tech Lubricants and Orient Rental Modaraba in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Rental Modaraba 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 Orient Rental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Rental Modaraba has no effect on the direction of Hi Tech i.e., Hi Tech and Orient Rental go up and down completely randomly.

Pair Corralation between Hi Tech and Orient Rental

Assuming the 90 days trading horizon Hi Tech Lubricants is expected to generate 1.47 times more return on investment than Orient Rental. However, Hi Tech is 1.47 times more volatile than Orient Rental Modaraba. It trades about 0.12 of its potential returns per unit of risk. Orient Rental Modaraba is currently generating about 0.06 per unit of risk. If you would invest  3,858  in Hi Tech Lubricants on October 23, 2024 and sell it today you would earn a total of  1,115  from holding Hi Tech Lubricants or generate 28.9% return on investment over 90 days.

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

Hi Tech Lubricants  vs.  Orient Rental Modaraba

Hi Tech Lubricants

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Tech Lubricants are ranked lower than 9 (%) 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.

Orient Rental Modaraba

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Orient Rental Modaraba are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Orient Rental may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hi Tech and Orient Rental

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

The idea behind Hi Tech Lubricants and Orient Rental Modaraba 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 Transaction History module to view history of all your transactions and understand their impact on performance.