Correlation Between Indian Metals and Nestle India

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

Diversification Opportunities for Indian Metals and Nestle India

-0.36

Correlation Coefficient

Indian Metals  Nestle India

Very good diversification

The 3 months correlation between Indian and Nestle is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Nestle India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle India Limited 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 Nestle India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle India Limited has no effect on the direction of Indian Metals i.e., Indian Metals and Nestle India go up and down completely randomly.

Pair Corralation between Indian Metals and Nestle India

Assuming the 90 days trading horizon Indian Metals Ferro is expected to under-perform the Nestle India. In addition to that, Indian Metals is 2.45 times more volatile than Nestle India Limited. It trades about -0.14 of its total potential returns per unit of risk. Nestle India Limited is currently generating about 0.08 per unit of volatility. If you would invest  214,063  in Nestle India Limited on December 25, 2024 and sell it today you would earn a total of  12,292  from holding Nestle India Limited or generate 5.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Indian Metals Ferro  vs.  Nestle India Limited

Indian Metals Ferro

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indian Metals Ferro has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Nestle India Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nestle India Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent forward indicators, Nestle India may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Indian Metals and Nestle India

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

The idea behind Indian Metals Ferro and Nestle India 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.