Correlation Between Indian Metals and Elgi Rubber

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

Diversification Opportunities for Indian Metals and Elgi Rubber

0.7

Correlation Coefficient

Indian Metals  Elgi Rubber

Poor diversification

The 3 months correlation between Indian and Elgi is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Elgi Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elgi Rubber 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 Elgi Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elgi Rubber has no effect on the direction of Indian Metals i.e., Indian Metals and Elgi Rubber go up and down completely randomly.

Pair Corralation between Indian Metals and Elgi Rubber

Assuming the 90 days trading horizon Indian Metals is expected to generate 1.17 times less return on investment than Elgi Rubber. But when comparing it to its historical volatility, Indian Metals Ferro is 1.25 times less risky than Elgi Rubber. It trades about 0.1 of its potential returns per unit of risk. Elgi Rubber is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,795  in Elgi Rubber on September 30, 2024 and sell it today you would earn a total of  10,889  from holding Elgi Rubber or generate 286.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Indian Metals Ferro  vs.  Elgi Rubber

Indian Metals Ferro

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Elgi Rubber

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elgi Rubber are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Elgi Rubber sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Metals and Elgi Rubber

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

The idea behind Indian Metals Ferro and Elgi Rubber 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.