Correlation Between IOL Chemicals and HMT

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

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

Diversification Opportunities for IOL Chemicals and HMT

0.57

Correlation Coefficient

IOL Chemicals  HMT

Very weak diversification

The 3 months correlation between IOL and HMT is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding IOL Chemicals and and HMT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMT Limited and IOL Chemicals 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 IOL Chemicals and are associated (or correlated) with HMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMT Limited has no effect on the direction of IOL Chemicals i.e., IOL Chemicals and HMT go up and down completely randomly.

Pair Corralation between IOL Chemicals and HMT

Assuming the 90 days trading horizon IOL Chemicals and is expected to generate 1.22 times more return on investment than HMT. However, IOL Chemicals is 1.22 times more volatile than HMT Limited. It trades about 0.07 of its potential returns per unit of risk. HMT Limited is currently generating about -0.05 per unit of risk. If you would invest  39,685  in IOL Chemicals and on October 6, 2024 and sell it today you would earn a total of  2,890  from holding IOL Chemicals and or generate 7.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.62%
Values	Daily Returns

IOL Chemicals and  vs.  HMT Limited

IOL Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IOL Chemicals and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, IOL Chemicals is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with IOL Chemicals and HMT

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

The idea behind IOL Chemicals and and HMT Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.