Correlation Between Indian Metals and Vardhman Holdings

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

Diversification Opportunities for Indian Metals and Vardhman Holdings

0.72

Correlation Coefficient

Indian Metals  Vardhman Holdings

Poor diversification

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

Pair Corralation between Indian Metals and Vardhman Holdings

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 0.54 times more return on investment than Vardhman Holdings. However, Indian Metals Ferro is 1.84 times less risky than Vardhman Holdings. It trades about 0.24 of its potential returns per unit of risk. Vardhman Holdings Limited is currently generating about 0.09 per unit of risk. If you would invest  66,039  in Indian Metals Ferro on September 15, 2024 and sell it today you would earn a total of  29,431  from holding Indian Metals Ferro or generate 44.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Indian Metals Ferro  vs.  Vardhman Holdings 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 uncertain basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vardhman Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vardhman Holdings Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Vardhman Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Metals and Vardhman Holdings

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

The idea behind Indian Metals Ferro and Vardhman Holdings 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.