Correlation Between Indian Metals and United Breweries

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

Diversification Opportunities for Indian Metals and United Breweries

0.33

Correlation Coefficient

Indian Metals  United Breweries

Weak diversification

The 3 months correlation between Indian and United is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and United Breweries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Breweries 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 United Breweries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Breweries has no effect on the direction of Indian Metals i.e., Indian Metals and United Breweries go up and down completely randomly.

Pair Corralation between Indian Metals and United Breweries

Assuming the 90 days trading horizon Indian Metals Ferro is expected to under-perform the United Breweries. In addition to that, Indian Metals is 1.74 times more volatile than United Breweries Limited. It trades about -0.13 of its total potential returns per unit of risk. United Breweries Limited is currently generating about -0.05 per unit of volatility. If you would invest  205,275  in United Breweries Limited on December 24, 2024 and sell it today you would lose (11,930) from holding United Breweries Limited or give up 5.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Indian Metals Ferro  vs.  United Breweries 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 inconsistent 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.

United Breweries

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Indian Metals and United Breweries

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

The idea behind Indian Metals Ferro and United Breweries 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.