Correlation Between Elgi Rubber and Pondy Oxides

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

By analyzing existing cross correlation between Elgi Rubber and Pondy Oxides Chemicals, you can compare the effects of market volatilities on Elgi Rubber and Pondy Oxides 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 Elgi Rubber with a short position of Pondy Oxides. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elgi Rubber and Pondy Oxides.

Diversification Opportunities for Elgi Rubber and Pondy Oxides

0.15

Correlation Coefficient

Elgi Rubber  Pondy Oxides

Average diversification

The 3 months correlation between Elgi and Pondy is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Elgi Rubber and Pondy Oxides Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pondy Oxides Chemicals and Elgi Rubber 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 Elgi Rubber are associated (or correlated) with Pondy Oxides. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pondy Oxides Chemicals has no effect on the direction of Elgi Rubber i.e., Elgi Rubber and Pondy Oxides go up and down completely randomly.

Pair Corralation between Elgi Rubber and Pondy Oxides

Assuming the 90 days trading horizon Elgi Rubber is expected to generate 1.22 times more return on investment than Pondy Oxides. However, Elgi Rubber is 1.22 times more volatile than Pondy Oxides Chemicals. It trades about 0.03 of its potential returns per unit of risk. Pondy Oxides Chemicals is currently generating about -0.04 per unit of risk. If you would invest  10,900  in Elgi Rubber on September 3, 2024 and sell it today you would earn a total of  347.00  from holding Elgi Rubber or generate 3.18% return on investment over 90 days.

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

Elgi Rubber  vs.  Pondy Oxides Chemicals

Elgi Rubber

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Elgi Rubber are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Elgi Rubber may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pondy Oxides Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pondy Oxides Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Elgi Rubber and Pondy Oxides

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

The idea behind Elgi Rubber and Pondy Oxides Chemicals 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.