Correlation Between Rainbow Childrens and Hi Tech

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

Diversification Opportunities for Rainbow Childrens and Hi Tech

-0.58
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Rainbow and HITECH is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Rainbow Childrens Medicare and Hi Tech Pipes Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hi Tech Pipes and Rainbow Childrens 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 Rainbow Childrens Medicare are associated (or correlated) with Hi Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hi Tech Pipes has no effect on the direction of Rainbow Childrens i.e., Rainbow Childrens and Hi Tech go up and down completely randomly.

Pair Corralation between Rainbow Childrens and Hi Tech

Assuming the 90 days trading horizon Rainbow Childrens Medicare is expected to generate 0.67 times more return on investment than Hi Tech. However, Rainbow Childrens Medicare is 1.5 times less risky than Hi Tech. It trades about -0.07 of its potential returns per unit of risk. Hi Tech Pipes Limited is currently generating about -0.26 per unit of risk. If you would invest  163,235  in Rainbow Childrens Medicare on October 11, 2024 and sell it today you would lose (4,005) from holding Rainbow Childrens Medicare or give up 2.45% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Rainbow Childrens Medicare  vs.  Hi Tech Pipes Limited

 Performance 
       Timeline  
Rainbow Childrens 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Rainbow Childrens Medicare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental drivers, Rainbow Childrens showed solid returns over the last few months and may actually be approaching a breakup point.
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.

Rainbow Childrens and Hi Tech Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rainbow Childrens and Hi Tech

The main advantage of trading using opposite Rainbow Childrens and Hi Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rainbow Childrens position performs unexpectedly, Hi Tech 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 Hi Tech will offset losses from the drop in Hi Tech's long position.
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The idea behind Rainbow Childrens Medicare and Hi Tech Pipes 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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