Correlation Between Music Broadcast and Hindustan Foods

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

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

Diversification Opportunities for Music Broadcast and Hindustan Foods

0.65

Correlation Coefficient

Music Broadcast  Hindustan Foods

Poor diversification

The 3 months correlation between Music and Hindustan is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Music Broadcast Limited and Hindustan Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Foods and Music Broadcast 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 Music Broadcast Limited are associated (or correlated) with Hindustan Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindustan Foods has no effect on the direction of Music Broadcast i.e., Music Broadcast and Hindustan Foods go up and down completely randomly.

Pair Corralation between Music Broadcast and Hindustan Foods

Assuming the 90 days trading horizon Music Broadcast Limited is expected to under-perform the Hindustan Foods. But the stock apears to be less risky and, when comparing its historical volatility, Music Broadcast Limited is 1.16 times less risky than Hindustan Foods. The stock trades about -0.18 of its potential returns per unit of risk. The Hindustan Foods Limited is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  57,210  in Hindustan Foods Limited on September 2, 2024 and sell it today you would lose (1,770) from holding Hindustan Foods Limited or give up 3.09% of portfolio value over 90 days.

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

Music Broadcast Limited  vs.  Hindustan Foods Limited

Music Broadcast

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Music Broadcast Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 somewhat strong technical and fundamental indicators, Hindustan Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Music Broadcast and Hindustan Foods

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

The idea behind Music Broadcast Limited and Hindustan Foods 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.