Correlation Between Industrial Investment and Indian Metals

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

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

Diversification Opportunities for Industrial Investment and Indian Metals

0.8

Correlation Coefficient

Industrial Investment  Indian Metals

Very poor diversification

The 3 months correlation between Industrial and Indian is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Investment Trust 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 Industrial Investment 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 Industrial Investment Trust 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 Industrial Investment i.e., Industrial Investment and Indian Metals go up and down completely randomly.

Pair Corralation between Industrial Investment and Indian Metals

Assuming the 90 days trading horizon Industrial Investment Trust is expected to generate 0.81 times more return on investment than Indian Metals. However, Industrial Investment Trust is 1.24 times less risky than Indian Metals. It trades about 0.35 of its potential returns per unit of risk. Indian Metals Ferro is currently generating about 0.18 per unit of risk. If you would invest  26,375  in Industrial Investment Trust on September 2, 2024 and sell it today you would earn a total of  14,305  from holding Industrial Investment Trust or generate 54.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Industrial Investment Trust  vs.  Indian Metals Ferro

Industrial Investment

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Investment Trust are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Industrial Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Indian Metals Ferro

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial Investment and Indian Metals

The main advantage of trading using opposite Industrial Investment and Indian Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Investment 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 Industrial Investment Trust 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.