Correlation Between Industrial and HMTNew Technical

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

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

Diversification Opportunities for Industrial and HMTNew Technical

0.2

Correlation Coefficient

Industrial  HMTNew Technical

Modest diversification

The 3 months correlation between Industrial and HMTNew is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and HMTNew Technical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMTNew Technical and Industrial 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 Industrial and Commercial are associated (or correlated) with HMTNew Technical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMTNew Technical has no effect on the direction of Industrial i.e., Industrial and HMTNew Technical go up and down completely randomly.

Pair Corralation between Industrial and HMTNew Technical

Assuming the 90 days trading horizon Industrial is expected to generate 4.93 times less return on investment than HMTNew Technical. But when comparing it to its historical volatility, Industrial and Commercial is 3.22 times less risky than HMTNew Technical. It trades about 0.12 of its potential returns per unit of risk. HMTNew Technical is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,060  in HMTNew Technical on September 5, 2024 and sell it today you would earn a total of  1,162  from holding HMTNew Technical or generate 56.41% return on investment over 90 days.

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

Industrial and Commercial  vs.  HMTNew Technical

Industrial and Commercial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HMTNew Technical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HMTNew Technical are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HMTNew Technical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and HMTNew Technical

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

The idea behind Industrial and Commercial and HMTNew Technical 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.