Correlation Between Wipro and Hindustan Construction

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

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

Diversification Opportunities for Wipro and Hindustan Construction

-0.6

Correlation Coefficient

Wipro  Hindustan Construction

Excellent diversification

The 3 months correlation between Wipro and Hindustan is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Wipro Limited and Hindustan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Construction and Wipro 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 Wipro Limited are associated (or correlated) with Hindustan Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindustan Construction has no effect on the direction of Wipro i.e., Wipro and Hindustan Construction go up and down completely randomly.

Pair Corralation between Wipro and Hindustan Construction

Assuming the 90 days trading horizon Wipro Limited is expected to generate 0.51 times more return on investment than Hindustan Construction. However, Wipro Limited is 1.96 times less risky than Hindustan Construction. It trades about 0.08 of its potential returns per unit of risk. Hindustan Construction is currently generating about -0.03 per unit of risk. If you would invest  53,500  in Wipro Limited on September 3, 2024 and sell it today you would earn a total of  4,285  from holding Wipro Limited or generate 8.01% return on investment over 90 days.

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

Wipro Limited  vs.  Hindustan Construction

Wipro Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wipro Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Wipro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hindustan Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Wipro and Hindustan Construction

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

The idea behind Wipro Limited and Hindustan Construction 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.