Correlation Between Agro Tech and Indian Overseas

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

By analyzing existing cross correlation between Agro Tech Foods and Indian Overseas Bank, you can compare the effects of market volatilities on Agro Tech and Indian Overseas 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 Agro Tech with a short position of Indian Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agro Tech and Indian Overseas.

Diversification Opportunities for Agro Tech and Indian Overseas

0.05

Correlation Coefficient

Agro Tech  Indian Overseas

Significant diversification

The 3 months correlation between Agro and Indian is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Agro Tech Foods and Indian Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Overseas Bank and Agro 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 Agro Tech Foods are associated (or correlated) with Indian Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Overseas Bank has no effect on the direction of Agro Tech i.e., Agro Tech and Indian Overseas go up and down completely randomly.

Pair Corralation between Agro Tech and Indian Overseas

Assuming the 90 days trading horizon Agro Tech is expected to generate 1.38 times less return on investment than Indian Overseas. But when comparing it to its historical volatility, Agro Tech Foods is 1.1 times less risky than Indian Overseas. It trades about 0.03 of its potential returns per unit of risk. Indian Overseas Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,360  in Indian Overseas Bank on October 5, 2024 and sell it today you would earn a total of  854.00  from holding Indian Overseas Bank or generate 19.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.87%
Values	Daily Returns

Agro Tech Foods  vs.  Indian Overseas Bank

Agro Tech Foods

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Agro Tech Foods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Agro Tech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Indian Overseas Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Overseas Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Indian Overseas is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Agro Tech and Indian Overseas

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

The idea behind Agro Tech Foods and Indian Overseas Bank 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.