Correlation Between Hi Tech and Sardar Chemical

Can any of the company-specific risk be diversified away by investing in both Hi Tech and Sardar Chemical 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 Sardar Chemical 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 Sardar Chemical Industries, you can compare the effects of market volatilities on Hi Tech and Sardar Chemical 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 Sardar Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hi Tech and Sardar Chemical.

Diversification Opportunities for Hi Tech and Sardar Chemical

0.08

Correlation Coefficient

Hi Tech  Sardar Chemical

Significant diversification

The 3 months correlation between HTL and Sardar is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Hi Tech Lubricants and Sardar Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sardar Chemical Indu 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 Sardar Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sardar Chemical Indu has no effect on the direction of Hi Tech i.e., Hi Tech and Sardar Chemical go up and down completely randomly.

Pair Corralation between Hi Tech and Sardar Chemical

Assuming the 90 days trading horizon Hi Tech Lubricants is expected to generate 0.87 times more return on investment than Sardar Chemical. However, Hi Tech Lubricants is 1.15 times less risky than Sardar Chemical. It trades about 0.13 of its potential returns per unit of risk. Sardar Chemical Industries is currently generating about 0.04 per unit of risk. If you would invest  3,758  in Hi Tech Lubricants on September 2, 2024 and sell it today you would earn a total of  903.00  from holding Hi Tech Lubricants or generate 24.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	56.92%
Values	Daily Returns

Hi Tech Lubricants  vs.  Sardar Chemical Industries

Hi Tech Lubricants

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Tech Lubricants are ranked lower than 10 (%) 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.

Sardar Chemical Indu

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sardar Chemical Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sardar Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hi Tech and Sardar Chemical

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

The idea behind Hi Tech Lubricants and Sardar Chemical Industries 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 Global Correlations module to find global opportunities by holding instruments from different markets.