Correlation Between GM Breweries and Indo Borax

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

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

Diversification Opportunities for GM Breweries and Indo Borax

0.64

Correlation Coefficient

GM Breweries  Indo Borax

Poor diversification

The 3 months correlation between GMBREW and Indo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and Indo Borax Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Borax Chemicals and GM Breweries 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 GM Breweries Limited are associated (or correlated) with Indo Borax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Borax Chemicals has no effect on the direction of GM Breweries i.e., GM Breweries and Indo Borax go up and down completely randomly.

Pair Corralation between GM Breweries and Indo Borax

Assuming the 90 days trading horizon GM Breweries Limited is expected to generate 1.18 times more return on investment than Indo Borax. However, GM Breweries is 1.18 times more volatile than Indo Borax Chemicals. It trades about 0.07 of its potential returns per unit of risk. Indo Borax Chemicals is currently generating about -0.01 per unit of risk. If you would invest  53,659  in GM Breweries Limited on October 7, 2024 and sell it today you would earn a total of  31,016  from holding GM Breweries Limited or generate 57.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.18%
Values	Daily Returns

GM Breweries Limited  vs.  Indo Borax Chemicals

GM Breweries Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GM Breweries Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Indo Borax Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Borax Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Indo Borax is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with GM Breweries and Indo Borax

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

The idea behind GM Breweries Limited and Indo Borax 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 Anywhere module to track or share privately all of your investments from the convenience of any device.