Correlation Between GM Breweries and ITI

Can any of the company-specific risk be diversified away by investing in both GM Breweries and ITI 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 ITI 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 ITI Limited, you can compare the effects of market volatilities on GM Breweries and ITI 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 ITI. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM Breweries and ITI.

Diversification Opportunities for GM Breweries and ITI

0.72

Correlation Coefficient

GM Breweries  ITI

Poor diversification

The 3 months correlation between GMBREW and ITI is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and ITI Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITI Limited 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 ITI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITI Limited has no effect on the direction of GM Breweries i.e., GM Breweries and ITI go up and down completely randomly.

Pair Corralation between GM Breweries and ITI

Assuming the 90 days trading horizon GM Breweries Limited is expected to under-perform the ITI. But the stock apears to be less risky and, when comparing its historical volatility, GM Breweries Limited is 2.04 times less risky than ITI. The stock trades about -0.13 of its potential returns per unit of risk. The ITI Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  34,110  in ITI Limited on December 22, 2024 and sell it today you would lose (7,928) from holding ITI Limited or give up 23.24% of portfolio value over 90 days.

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

GM Breweries Limited  vs.  ITI Limited

GM Breweries Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ITI Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITI Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with GM Breweries and ITI

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

The idea behind GM Breweries Limited and ITI 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.