Correlation Between Agro Tech and NIFTY SUMER

Can any of the company-specific risk be diversified away by investing in both Agro Tech and NIFTY SUMER 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 NIFTY SUMER 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 NIFTY SUMER DURABLES, you can compare the effects of market volatilities on Agro Tech and NIFTY SUMER 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 NIFTY SUMER. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agro Tech and NIFTY SUMER.

Diversification Opportunities for Agro Tech and NIFTY SUMER

-0.43

Correlation Coefficient

Agro Tech  NIFTY SUMER

Very good diversification

The 3 months correlation between Agro and NIFTY is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Agro Tech Foods and NIFTY SUMER DURABLES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIFTY SUMER DURABLES 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 NIFTY SUMER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIFTY SUMER DURABLES has no effect on the direction of Agro Tech i.e., Agro Tech and NIFTY SUMER go up and down completely randomly.

Pair Corralation between Agro Tech and NIFTY SUMER

Assuming the 90 days trading horizon Agro Tech is expected to generate 1.89 times less return on investment than NIFTY SUMER. In addition to that, Agro Tech is 2.92 times more volatile than NIFTY SUMER DURABLES. It trades about 0.02 of its total potential returns per unit of risk. NIFTY SUMER DURABLES is currently generating about 0.12 per unit of volatility. If you would invest  2,543,105  in NIFTY SUMER DURABLES on September 26, 2024 and sell it today you would earn a total of  1,609,485  from holding NIFTY SUMER DURABLES or generate 63.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.38%
Values	Daily Returns

Agro Tech Foods  vs.  NIFTY SUMER DURABLES

Pair Trading with Agro Tech and NIFTY SUMER

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

The idea behind Agro Tech Foods and NIFTY SUMER DURABLES 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.