Correlation Between Music Broadcast and HMT

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

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

Diversification Opportunities for Music Broadcast and HMT

-0.16

Correlation Coefficient

Music Broadcast  HMT

Good diversification

The 3 months correlation between Music and HMT is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Music Broadcast Limited and HMT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMT Limited and Music Broadcast 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 Music Broadcast Limited are associated (or correlated) with HMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMT Limited has no effect on the direction of Music Broadcast i.e., Music Broadcast and HMT go up and down completely randomly.

Pair Corralation between Music Broadcast and HMT

Assuming the 90 days trading horizon Music Broadcast Limited is expected to under-perform the HMT. But the stock apears to be less risky and, when comparing its historical volatility, Music Broadcast Limited is 1.69 times less risky than HMT. The stock trades about -0.05 of its potential returns per unit of risk. The HMT Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,435  in HMT Limited on April 7, 2024 and sell it today you would earn a total of  1,482  from holding HMT Limited or generate 27.27% return on investment over 90 days.

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

Music Broadcast Limited  vs.  HMT Limited

Music Broadcast

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Music Broadcast Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

HMT Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HMT Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, HMT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Music Broadcast and HMT

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

The idea behind Music Broadcast Limited and HMT 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.