Correlation Between Sapphire Foods and Hindcon Chemicals

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

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

Diversification Opportunities for Sapphire Foods and Hindcon Chemicals

0.61

Correlation Coefficient

Sapphire Foods  Hindcon Chemicals

Poor diversification

The 3 months correlation between Sapphire and Hindcon is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sapphire Foods India and Hindcon Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindcon Chemicals and Sapphire Foods 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 Sapphire Foods India are associated (or correlated) with Hindcon Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindcon Chemicals has no effect on the direction of Sapphire Foods i.e., Sapphire Foods and Hindcon Chemicals go up and down completely randomly.

Pair Corralation between Sapphire Foods and Hindcon Chemicals

Assuming the 90 days trading horizon Sapphire Foods is expected to generate 1.15 times less return on investment than Hindcon Chemicals. But when comparing it to its historical volatility, Sapphire Foods India is 1.98 times less risky than Hindcon Chemicals. It trades about 0.01 of its potential returns per unit of risk. Hindcon Chemicals Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,610  in Hindcon Chemicals Limited on October 6, 2024 and sell it today you would lose (132.00) from holding Hindcon Chemicals Limited or give up 2.86% of portfolio value over 90 days.

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

Sapphire Foods India  vs.  Hindcon Chemicals Limited

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Sapphire Foods is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Hindcon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sapphire Foods and Hindcon Chemicals

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

The idea behind Sapphire Foods India and Hindcon Chemicals 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.