Correlation Between Indian Metals and Steelcast

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

Diversification Opportunities for Indian Metals and Steelcast

0.72

Correlation Coefficient

Indian Metals  Steelcast

Poor diversification

The 3 months correlation between Indian and Steelcast is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Steelcast Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steelcast 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 Steelcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steelcast Limited has no effect on the direction of Indian Metals i.e., Indian Metals and Steelcast go up and down completely randomly.

Pair Corralation between Indian Metals and Steelcast

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.18 times more return on investment than Steelcast. However, Indian Metals is 1.18 times more volatile than Steelcast Limited. It trades about 0.33 of its potential returns per unit of risk. Steelcast Limited is currently generating about 0.38 per unit of risk. If you would invest  77,285  in Indian Metals Ferro on September 19, 2024 and sell it today you would earn a total of  15,250  from holding Indian Metals Ferro or generate 19.73% 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.  Steelcast Limited

Indian Metals Ferro

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 18 (%) 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.

Steelcast Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steelcast Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Steelcast sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Metals and Steelcast

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

The idea behind Indian Metals Ferro and Steelcast 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.