Correlation Between GM Breweries and Manaksia Steels

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

Diversification Opportunities for GM Breweries and Manaksia Steels

0.07

Correlation Coefficient

GM Breweries  Manaksia Steels

Significant diversification

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

Pair Corralation between GM Breweries and Manaksia Steels

Assuming the 90 days trading horizon GM Breweries Limited is expected to generate 0.71 times more return on investment than Manaksia Steels. However, GM Breweries Limited is 1.41 times less risky than Manaksia Steels. It trades about 0.04 of its potential returns per unit of risk. Manaksia Steels Limited is currently generating about -0.13 per unit of risk. If you would invest  79,720  in GM Breweries Limited on September 2, 2024 and sell it today you would earn a total of  880.00  from holding GM Breweries Limited or generate 1.1% return on investment over 90 days.

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

GM Breweries Limited  vs.  Manaksia Steels Limited

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Manaksia Steels

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Manaksia Steels Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Manaksia Steels unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM Breweries and Manaksia Steels

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

The idea behind GM Breweries Limited and Manaksia Steels 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.