Correlation Between NIFTY SUMER and HCL Technologies

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

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

Diversification Opportunities for NIFTY SUMER and HCL Technologies

-0.44

Correlation Coefficient

NIFTY SUMER  HCL Technologies

Very good diversification

The 3 months correlation between NIFTY and HCL is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and HCL Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCL Technologies and NIFTY SUMER 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 NIFTY SUMER DURABLES are associated (or correlated) with HCL Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCL Technologies has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and HCL Technologies go up and down completely randomly.

Pair Corralation between NIFTY SUMER and HCL Technologies

Assuming the 90 days trading horizon NIFTY SUMER is expected to generate 1.29 times less return on investment than HCL Technologies. But when comparing it to its historical volatility, NIFTY SUMER DURABLES is 1.44 times less risky than HCL Technologies. It trades about 0.13 of its potential returns per unit of risk. HCL Technologies Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  121,515  in HCL Technologies Limited on September 8, 2024 and sell it today you would earn a total of  70,755  from holding HCL Technologies Limited or generate 58.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.29%
Values	Daily Returns

NIFTY SUMER DURABLES  vs.  HCL Technologies Limited

Pair Trading with NIFTY SUMER and HCL Technologies

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

The idea behind NIFTY SUMER DURABLES and HCL Technologies 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.