Correlation Between Indian Energy and Alkali Metals

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

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

Diversification Opportunities for Indian Energy and Alkali Metals

0.63

Correlation Coefficient

Indian Energy  Alkali Metals

Poor diversification

The 3 months correlation between Indian and Alkali is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Indian Energy Exchange and Alkali Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkali Metals Limited and Indian Energy 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 Indian Energy Exchange are associated (or correlated) with Alkali Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkali Metals Limited has no effect on the direction of Indian Energy i.e., Indian Energy and Alkali Metals go up and down completely randomly.

Pair Corralation between Indian Energy and Alkali Metals

Assuming the 90 days trading horizon Indian Energy Exchange is expected to generate 0.73 times more return on investment than Alkali Metals. However, Indian Energy Exchange is 1.37 times less risky than Alkali Metals. It trades about 0.1 of its potential returns per unit of risk. Alkali Metals Limited is currently generating about 0.04 per unit of risk. If you would invest  17,325  in Indian Energy Exchange on September 5, 2024 and sell it today you would earn a total of  485.00  from holding Indian Energy Exchange or generate 2.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Indian Energy Exchange  vs.  Alkali Metals Limited

Indian Energy Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Energy Exchange 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Alkali Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Indian Energy and Alkali Metals

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

The idea behind Indian Energy Exchange and Alkali Metals 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.