Correlation Between Indus and Crescent Star

Can any of the company-specific risk be diversified away by investing in both Indus and Crescent Star 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 Indus and Crescent Star into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indus Motor and Crescent Star Insurance, you can compare the effects of market volatilities on Indus and Crescent Star 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 Indus with a short position of Crescent Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indus and Crescent Star.

Diversification Opportunities for Indus and Crescent Star

-0.15

Correlation Coefficient

Indus  Crescent Star

Good diversification

The 3 months correlation between Indus and Crescent is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Indus Motor and Crescent Star Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crescent Star Insurance and Indus 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 Indus Motor are associated (or correlated) with Crescent Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crescent Star Insurance has no effect on the direction of Indus i.e., Indus and Crescent Star go up and down completely randomly.

Pair Corralation between Indus and Crescent Star

Assuming the 90 days trading horizon Indus Motor is expected to generate 0.52 times more return on investment than Crescent Star. However, Indus Motor is 1.92 times less risky than Crescent Star. It trades about -0.1 of its potential returns per unit of risk. Crescent Star Insurance is currently generating about -0.06 per unit of risk. If you would invest  220,055  in Indus Motor on December 23, 2024 and sell it today you would lose (14,900) from holding Indus Motor or give up 6.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Indus Motor  vs.  Crescent Star Insurance

Indus Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indus Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Crescent Star Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Crescent Star Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Indus and Crescent Star

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

The idea behind Indus Motor and Crescent Star Insurance 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.