Correlation Between Newgen Software and Hindalco Industries

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

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

Diversification Opportunities for Newgen Software and Hindalco Industries

0.37

Correlation Coefficient

Newgen Software  Hindalco Industries

Weak diversification

The 3 months correlation between Newgen and Hindalco is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Newgen Software Technologies and Hindalco Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindalco Industries and Newgen Software 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 Newgen Software Technologies are associated (or correlated) with Hindalco Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindalco Industries has no effect on the direction of Newgen Software i.e., Newgen Software and Hindalco Industries go up and down completely randomly.

Pair Corralation between Newgen Software and Hindalco Industries

Assuming the 90 days trading horizon Newgen Software Technologies is expected to generate 1.83 times more return on investment than Hindalco Industries. However, Newgen Software is 1.83 times more volatile than Hindalco Industries Limited. It trades about 0.09 of its potential returns per unit of risk. Hindalco Industries Limited is currently generating about -0.03 per unit of risk. If you would invest  120,985  in Newgen Software Technologies on September 18, 2024 and sell it today you would earn a total of  21,905  from holding Newgen Software Technologies or generate 18.11% return on investment over 90 days.

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

Newgen Software Technologies  vs.  Hindalco Industries Limited

Newgen Software Tech

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Newgen Software Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, Newgen Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Hindalco Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hindalco Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Hindalco Industries is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Newgen Software and Hindalco Industries

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

The idea behind Newgen Software Technologies and Hindalco Industries 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.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.