Correlation Between Indian Metals and Indian Energy

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

Diversification Opportunities for Indian Metals and Indian Energy

-0.59

Correlation Coefficient

Indian Metals  Indian Energy

Excellent diversification

The 3 months correlation between Indian and Indian is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Indian Energy Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Energy Exchange 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 Indian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Energy Exchange has no effect on the direction of Indian Metals i.e., Indian Metals and Indian Energy go up and down completely randomly.

Pair Corralation between Indian Metals and Indian Energy

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.11 times more return on investment than Indian Energy. However, Indian Metals is 1.11 times more volatile than Indian Energy Exchange. It trades about 0.27 of its potential returns per unit of risk. Indian Energy Exchange is currently generating about -0.08 per unit of risk. If you would invest  61,876  in Indian Metals Ferro on September 9, 2024 and sell it today you would earn a total of  31,944  from holding Indian Metals Ferro or generate 51.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Indian Metals Ferro  vs.  Indian Energy Exchange

Indian Metals Ferro

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 20 (%) 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.

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 latest inconsistent performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Indian Metals and Indian Energy

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

The idea behind Indian Metals Ferro and Indian Energy Exchange 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.