Correlation Between Hi Tech and BF Investment

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Can any of the company-specific risk be diversified away by investing in both Hi Tech and BF Investment 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 BF Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hi Tech Pipes Limited and BF Investment Limited, you can compare the effects of market volatilities on Hi Tech and BF Investment 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 BF Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hi Tech and BF Investment.

Diversification Opportunities for Hi Tech and BF Investment

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between HITECH and BFINVEST is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hi Tech Pipes Limited and BF Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Investment Limited 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 Pipes Limited are associated (or correlated) with BF Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Investment Limited has no effect on the direction of Hi Tech i.e., Hi Tech and BF Investment go up and down completely randomly.

Pair Corralation between Hi Tech and BF Investment

Assuming the 90 days trading horizon Hi Tech Pipes Limited is expected to under-perform the BF Investment. But the stock apears to be less risky and, when comparing its historical volatility, Hi Tech Pipes Limited is 1.11 times less risky than BF Investment. The stock trades about -0.03 of its potential returns per unit of risk. The BF Investment Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  66,005  in BF Investment Limited on October 26, 2024 and sell it today you would lose (7,715) from holding BF Investment Limited or give up 11.69% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Hi Tech Pipes Limited  vs.  BF Investment Limited

 Performance 
       Timeline  
Hi Tech Pipes 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Hi Tech Pipes Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
BF Investment Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BF Investment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Hi Tech and BF Investment Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hi Tech and BF Investment

The main advantage of trading using opposite Hi Tech and BF Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hi Tech position performs unexpectedly, BF Investment 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 BF Investment will offset losses from the drop in BF Investment's long position.
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The idea behind Hi Tech Pipes Limited and BF Investment 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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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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