Correlation Between Indian Metals and Zomato

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

Diversification Opportunities for Indian Metals and Zomato

0.6

Correlation Coefficient

Indian Metals  Zomato

Poor diversification

The 3 months correlation between Indian and Zomato is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Zomato Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zomato Limited 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 Zomato. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zomato Limited has no effect on the direction of Indian Metals i.e., Indian Metals and Zomato go up and down completely randomly.

Pair Corralation between Indian Metals and Zomato

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.22 times more return on investment than Zomato. However, Indian Metals is 1.22 times more volatile than Zomato Limited. It trades about 0.18 of its potential returns per unit of risk. Zomato Limited is currently generating about -0.01 per unit of risk. If you would invest  65,462  in Indian Metals Ferro on September 26, 2024 and sell it today you would earn a total of  21,643  from holding Indian Metals Ferro or generate 33.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Indian Metals Ferro  vs.  Zomato Limited

Indian Metals Ferro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 14 (%) 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.

Zomato Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zomato Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zomato is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Indian Metals and Zomato

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

The idea behind Indian Metals Ferro and Zomato 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.