Correlation Between Foods Inns and Hindustan Construction

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

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

Diversification Opportunities for Foods Inns and Hindustan Construction

0.77

Correlation Coefficient

Foods Inns  Hindustan Construction

Poor diversification

The 3 months correlation between Foods and Hindustan is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Foods Inns Limited and Hindustan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Construction and Foods Inns 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 Foods Inns Limited are associated (or correlated) with Hindustan Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindustan Construction has no effect on the direction of Foods Inns i.e., Foods Inns and Hindustan Construction go up and down completely randomly.

Pair Corralation between Foods Inns and Hindustan Construction

Assuming the 90 days trading horizon Foods Inns Limited is expected to under-perform the Hindustan Construction. In addition to that, Foods Inns is 1.11 times more volatile than Hindustan Construction. It trades about -0.06 of its total potential returns per unit of risk. Hindustan Construction is currently generating about -0.02 per unit of volatility. If you would invest  4,620  in Hindustan Construction on September 4, 2024 and sell it today you would lose (349.00) from holding Hindustan Construction or give up 7.55% of portfolio value over 90 days.

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

Foods Inns Limited  vs.  Hindustan Construction

Foods Inns Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foods Inns Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Hindustan Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Foods Inns and Hindustan Construction

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

The idea behind Foods Inns Limited and Hindustan Construction 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.