Correlation Between Fine Organic and Indian Metals

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

By analyzing existing cross correlation between Fine Organic Industries and Indian Metals Ferro, you can compare the effects of market volatilities on Fine Organic and Indian Metals 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 Fine Organic with a short position of Indian Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fine Organic and Indian Metals.

Diversification Opportunities for Fine Organic and Indian Metals

-0.07

Correlation Coefficient

Fine Organic  Indian Metals

Good diversification

The 3 months correlation between Fine and Indian is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Fine Organic Industries and Indian Metals Ferro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Metals Ferro and Fine Organic 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 Fine Organic Industries are associated (or correlated) with Indian Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Metals Ferro has no effect on the direction of Fine Organic i.e., Fine Organic and Indian Metals go up and down completely randomly.

Pair Corralation between Fine Organic and Indian Metals

Assuming the 90 days trading horizon Fine Organic Industries is expected to under-perform the Indian Metals. But the stock apears to be less risky and, when comparing its historical volatility, Fine Organic Industries is 1.19 times less risky than Indian Metals. The stock trades about -0.27 of its potential returns per unit of risk. The Indian Metals Ferro is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  98,535  in Indian Metals Ferro on October 12, 2024 and sell it today you would lose (8,610) from holding Indian Metals Ferro or give up 8.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Fine Organic Industries  vs.  Indian Metals Ferro

Fine Organic Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fine Organic Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Indian Metals Ferro

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fine Organic and Indian Metals

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

The idea behind Fine Organic Industries and Indian Metals Ferro 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.