Correlation Between Indian Metals and Dev Information

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

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

Diversification Opportunities for Indian Metals and Dev Information

0.62

Correlation Coefficient

Indian Metals  Dev Information

Poor diversification

The 3 months correlation between Indian and Dev is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Dev Information Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dev Information Tech and Indian Metals 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 Metals Ferro are associated (or correlated) with Dev Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dev Information Tech has no effect on the direction of Indian Metals i.e., Indian Metals and Dev Information go up and down completely randomly.

Pair Corralation between Indian Metals and Dev Information

Assuming the 90 days trading horizon Indian Metals is expected to generate 1.35 times less return on investment than Dev Information. But when comparing it to its historical volatility, Indian Metals Ferro is 1.55 times less risky than Dev Information. It trades about 0.04 of its potential returns per unit of risk. Dev Information Technology is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  16,319  in Dev Information Technology on October 25, 2024 and sell it today you would earn a total of  162.00  from holding Dev Information Technology or generate 0.99% return on investment over 90 days.

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

Indian Metals Ferro  vs.  Dev Information Technology

Indian Metals Ferro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dev Information Tech

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dev Information Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Dev Information displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Metals and Dev Information

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

The idea behind Indian Metals Ferro and Dev Information Technology 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 Transaction History module to view history of all your transactions and understand their impact on performance.