Correlation Between Indian Metals and Oriental Carbon

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

Diversification Opportunities for Indian Metals and Oriental Carbon

-0.4

Correlation Coefficient

Indian Metals  Oriental Carbon

Very good diversification

The 3 months correlation between Indian and Oriental is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Oriental Carbon Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Carbon Chemicals 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 Oriental Carbon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Carbon Chemicals has no effect on the direction of Indian Metals i.e., Indian Metals and Oriental Carbon go up and down completely randomly.

Pair Corralation between Indian Metals and Oriental Carbon

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 0.69 times more return on investment than Oriental Carbon. However, Indian Metals Ferro is 1.46 times less risky than Oriental Carbon. It trades about 0.11 of its potential returns per unit of risk. Oriental Carbon Chemicals is currently generating about -0.02 per unit of risk. If you would invest  23,886  in Indian Metals Ferro on September 20, 2024 and sell it today you would earn a total of  69,299  from holding Indian Metals Ferro or generate 290.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Indian Metals Ferro  vs.  Oriental Carbon Chemicals

Indian Metals Ferro

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Oriental Carbon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oriental Carbon Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Oriental Carbon is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Indian Metals and Oriental Carbon

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

The idea behind Indian Metals Ferro and Oriental Carbon Chemicals 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.