Correlation Between Fertilizers and Vedanta

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

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

Diversification Opportunities for Fertilizers and Vedanta

0.29

Correlation Coefficient

Fertilizers  Vedanta

Modest diversification

The 3 months correlation between Fertilizers and Vedanta is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Fertilizers and Chemicals and Vedanta Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vedanta Limited and Fertilizers 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 Fertilizers and Chemicals are associated (or correlated) with Vedanta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vedanta Limited has no effect on the direction of Fertilizers i.e., Fertilizers and Vedanta go up and down completely randomly.

Pair Corralation between Fertilizers and Vedanta

Assuming the 90 days trading horizon Fertilizers and Chemicals is expected to under-perform the Vedanta. In addition to that, Fertilizers is 1.41 times more volatile than Vedanta Limited. It trades about -0.17 of its total potential returns per unit of risk. Vedanta Limited is currently generating about 0.01 per unit of volatility. If you would invest  46,045  in Vedanta Limited on December 26, 2024 and sell it today you would earn a total of  135.00  from holding Vedanta Limited or generate 0.29% return on investment over 90 days.

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

Fertilizers and Chemicals  vs.  Vedanta Limited

Fertilizers and Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fertilizers and Chemicals 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 basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Vedanta Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vedanta Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vedanta is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fertilizers and Vedanta

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

The idea behind Fertilizers and Chemicals and Vedanta Limited 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.