Correlation Between Indian Metals and STEEL EXCHANGE

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

Diversification Opportunities for Indian Metals and STEEL EXCHANGE

-0.59

Correlation Coefficient

Indian Metals  STEEL EXCHANGE

Excellent diversification

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

Pair Corralation between Indian Metals and STEEL EXCHANGE

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.28 times more return on investment than STEEL EXCHANGE. However, Indian Metals is 1.28 times more volatile than STEEL EXCHANGE INDIA. It trades about 0.27 of its potential returns per unit of risk. STEEL EXCHANGE INDIA is currently generating about -0.13 per unit of risk. If you would invest  62,917  in Indian Metals Ferro on September 13, 2024 and sell it today you would earn a total of  33,153  from holding Indian Metals Ferro or generate 52.69% 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.  STEEL EXCHANGE INDIA

Indian Metals Ferro

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 21 (%) 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.

STEEL EXCHANGE INDIA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STEEL EXCHANGE INDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Indian Metals and STEEL EXCHANGE

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

The idea behind Indian Metals Ferro and STEEL EXCHANGE INDIA 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.