Correlation Between Hi Tech and Arctic Textile

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

By analyzing existing cross correlation between Hi Tech Lubricants and Arctic Textile, you can compare the effects of market volatilities on Hi Tech and Arctic Textile 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 Arctic Textile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hi Tech and Arctic Textile.

Diversification Opportunities for Hi Tech and Arctic Textile

-0.35

Correlation Coefficient

Hi Tech  Arctic Textile

Very good diversification

The 3 months correlation between HTL and Arctic is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Hi Tech Lubricants and Arctic Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arctic Textile 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 Hi Tech Lubricants are associated (or correlated) with Arctic Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arctic Textile has no effect on the direction of Hi Tech i.e., Hi Tech and Arctic Textile go up and down completely randomly.

Pair Corralation between Hi Tech and Arctic Textile

Assuming the 90 days trading horizon Hi Tech Lubricants is expected to generate 0.9 times more return on investment than Arctic Textile. However, Hi Tech Lubricants is 1.11 times less risky than Arctic Textile. It trades about 0.17 of its potential returns per unit of risk. Arctic Textile is currently generating about -0.09 per unit of risk. If you would invest  3,920  in Hi Tech Lubricants on September 12, 2024 and sell it today you would earn a total of  1,736  from holding Hi Tech Lubricants or generate 44.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	87.3%
Values	Daily Returns

Hi Tech Lubricants  vs.  Arctic Textile

Hi Tech Lubricants

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Tech Lubricants are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Hi Tech reported solid returns over the last few months and may actually be approaching a breakup point.

Arctic Textile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arctic Textile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Hi Tech and Arctic Textile

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

The idea behind Hi Tech Lubricants and Arctic Textile 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.