Correlation Between EFU General and Mughal Iron

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

By analyzing existing cross correlation between EFU General Insurance and Mughal Iron Steel, you can compare the effects of market volatilities on EFU General and Mughal Iron 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 EFU General with a short position of Mughal Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of EFU General and Mughal Iron.

Diversification Opportunities for EFU General and Mughal Iron

-0.43

Correlation Coefficient

EFU General  Mughal Iron

Very good diversification

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

Pair Corralation between EFU General and Mughal Iron

Assuming the 90 days trading horizon EFU General Insurance is expected to generate 1.31 times more return on investment than Mughal Iron. However, EFU General is 1.31 times more volatile than Mughal Iron Steel. It trades about 0.12 of its potential returns per unit of risk. Mughal Iron Steel is currently generating about -0.02 per unit of risk. If you would invest  9,741  in EFU General Insurance on September 13, 2024 and sell it today you would earn a total of  2,560  from holding EFU General Insurance or generate 26.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

EFU General Insurance  vs.  Mughal Iron Steel

EFU General Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

Mughal Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mughal Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, Mughal Iron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with EFU General and Mughal Iron

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

The idea behind EFU General Insurance and Mughal Iron Steel 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.