Correlation Between Hi Tech and LT Foods

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

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

Diversification Opportunities for Hi Tech and LT Foods

0.7

Correlation Coefficient

Hi Tech  LT Foods

Poor diversification

The 3 months correlation between HITECHGEAR and LTFOODS is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding The Hi Tech Gears and LT Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LT Foods Limited and Hi Tech 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 The Hi Tech Gears are associated (or correlated) with LT Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LT Foods Limited has no effect on the direction of Hi Tech i.e., Hi Tech and LT Foods go up and down completely randomly.

Pair Corralation between Hi Tech and LT Foods

Assuming the 90 days trading horizon Hi Tech is expected to generate 136.75 times less return on investment than LT Foods. But when comparing it to its historical volatility, The Hi Tech Gears is 1.19 times less risky than LT Foods. It trades about 0.0 of its potential returns per unit of risk. LT Foods Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  42,602  in LT Foods Limited on September 19, 2024 and sell it today you would earn a total of  418.00  from holding LT Foods Limited or generate 0.98% return on investment over 90 days.

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

The Hi Tech Gears  vs.  LT Foods Limited

Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Hi Tech Gears has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Hi Tech is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

LT Foods Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LT Foods Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, LT Foods is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hi Tech and LT Foods

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

The idea behind The Hi Tech Gears and LT 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.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.