Correlation Between Indian Metals and Zenith Steel

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

Diversification Opportunities for Indian Metals and Zenith Steel

-0.58

Correlation Coefficient

Indian Metals  Zenith Steel

Excellent diversification

The 3 months correlation between Indian and Zenith is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Zenith Steel Pipes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zenith Steel Pipes 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 Zenith Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zenith Steel Pipes has no effect on the direction of Indian Metals i.e., Indian Metals and Zenith Steel go up and down completely randomly.

Pair Corralation between Indian Metals and Zenith Steel

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.05 times more return on investment than Zenith Steel. However, Indian Metals is 1.05 times more volatile than Zenith Steel Pipes. It trades about 0.22 of its potential returns per unit of risk. Zenith Steel Pipes is currently generating about -0.06 per unit of risk. If you would invest  63,785  in Indian Metals Ferro on September 4, 2024 and sell it today you would earn a total of  23,325  from holding Indian Metals Ferro or generate 36.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Indian Metals Ferro  vs.  Zenith Steel Pipes

Indian Metals Ferro

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 16 (%) 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.

Zenith Steel Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zenith Steel Pipes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Indian Metals and Zenith Steel

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

The idea behind Indian Metals Ferro and Zenith Steel Pipes 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.