Correlation Between ITI and HMT

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

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

Diversification Opportunities for ITI and HMT

0.21

Correlation Coefficient

ITI  HMT

Modest diversification

The 3 months correlation between ITI and HMT is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding ITI Limited and HMT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMT Limited and ITI 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 ITI Limited are associated (or correlated) with HMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMT Limited has no effect on the direction of ITI i.e., ITI and HMT go up and down completely randomly.

Pair Corralation between ITI and HMT

Assuming the 90 days trading horizon ITI Limited is expected to generate 1.53 times more return on investment than HMT. However, ITI is 1.53 times more volatile than HMT Limited. It trades about 0.0 of its potential returns per unit of risk. HMT Limited is currently generating about -0.15 per unit of risk. If you would invest  29,750  in ITI Limited on September 4, 2024 and sell it today you would lose (1,005) from holding ITI Limited or give up 3.38% of portfolio value over 90 days.

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

ITI Limited  vs.  HMT Limited

ITI Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

HMT Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HMT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with ITI and HMT

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

The idea behind ITI Limited and HMT 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.