Correlation Between Hindustan Construction and State Bank
Can any of the company-specific risk be diversified away by investing in both Hindustan Construction and State Bank 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 Hindustan Construction and State Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hindustan Construction and State Bank of, you can compare the effects of market volatilities on Hindustan Construction and State Bank 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 Hindustan Construction with a short position of State Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hindustan Construction and State Bank.
Diversification Opportunities for Hindustan Construction and State Bank
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hindustan and State is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Construction and State Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Bank and Hindustan Construction 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 Hindustan Construction are associated (or correlated) with State Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Bank has no effect on the direction of Hindustan Construction i.e., Hindustan Construction and State Bank go up and down completely randomly.
Pair Corralation between Hindustan Construction and State Bank
Assuming the 90 days trading horizon Hindustan Construction is expected to under-perform the State Bank. In addition to that, Hindustan Construction is 2.63 times more volatile than State Bank of. It trades about -0.53 of its total potential returns per unit of risk. State Bank of is currently generating about -0.53 per unit of volatility. If you would invest 86,095 in State Bank of on October 16, 2024 and sell it today you would lose (11,280) from holding State Bank of or give up 13.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hindustan Construction vs. State Bank of
Performance |
| Timeline |
| Hindustan Construction |
| State Bank |
Hindustan Construction and State Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hindustan Construction and State Bank
The main advantage of trading using opposite Hindustan Construction and State Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hindustan Construction position performs unexpectedly, State Bank 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 State Bank will offset losses from the drop in State Bank's long position.The idea behind Hindustan Construction and State Bank of 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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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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