Correlation Between Indian Metals and Investment Trust

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

Diversification Opportunities for Indian Metals and Investment Trust

-0.12

Correlation Coefficient

Indian Metals  Investment Trust

Good diversification

The 3 months correlation between Indian and Investment is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and The Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Trust 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 Investment Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Trust has no effect on the direction of Indian Metals i.e., Indian Metals and Investment Trust go up and down completely randomly.

Pair Corralation between Indian Metals and Investment Trust

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.6 times more return on investment than Investment Trust. However, Indian Metals is 1.6 times more volatile than The Investment Trust. It trades about -0.17 of its potential returns per unit of risk. The Investment Trust is currently generating about -0.37 per unit of risk. If you would invest  98,535  in Indian Metals Ferro on October 12, 2024 and sell it today you would lose (8,610) from holding Indian Metals Ferro or give up 8.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Indian Metals Ferro  vs.  The Investment Trust

Indian Metals Ferro

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 12 (%) 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.

Investment Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Investment Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Indian Metals and Investment Trust

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

The idea behind Indian Metals Ferro and The Investment Trust 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.