Correlation Between Alkali Metals and Indian Energy

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

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

Diversification Opportunities for Alkali Metals and Indian Energy

0.63

Correlation Coefficient

Alkali Metals  Indian Energy

Poor diversification

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

Pair Corralation between Alkali Metals and Indian Energy

Assuming the 90 days trading horizon Alkali Metals Limited is expected to under-perform the Indian Energy. But the stock apears to be less risky and, when comparing its historical volatility, Alkali Metals Limited is 1.01 times less risky than Indian Energy. The stock trades about -0.12 of its potential returns per unit of risk. The Indian Energy Exchange is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  20,910  in Indian Energy Exchange on September 5, 2024 and sell it today you would lose (3,100) from holding Indian Energy Exchange or give up 14.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Alkali Metals Limited  vs.  Indian Energy Exchange

Alkali Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alkali Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Indian Energy Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Energy Exchange has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Alkali Metals and Indian Energy

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

The idea behind Alkali Metals Limited and Indian Energy Exchange 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.