Correlation Between ITI and VIP Clothing

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

By analyzing existing cross correlation between ITI Limited and VIP Clothing Limited, you can compare the effects of market volatilities on ITI and VIP Clothing 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 ITI with a short position of VIP Clothing. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITI and VIP Clothing.

Diversification Opportunities for ITI and VIP Clothing

0.75

Correlation Coefficient

ITI  VIP Clothing

Poor diversification

The 3 months correlation between ITI and VIP is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ITI Limited and VIP Clothing Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIP Clothing Limited and ITI 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 ITI Limited are associated (or correlated) with VIP Clothing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIP Clothing Limited has no effect on the direction of ITI i.e., ITI and VIP Clothing go up and down completely randomly.

Pair Corralation between ITI and VIP Clothing

Assuming the 90 days trading horizon ITI Limited is expected to generate 1.54 times more return on investment than VIP Clothing. However, ITI is 1.54 times more volatile than VIP Clothing Limited. It trades about -0.11 of its potential returns per unit of risk. VIP Clothing Limited is currently generating about -0.24 per unit of risk. If you would invest  37,920  in ITI Limited on December 28, 2024 and sell it today you would lose (12,998) from holding ITI Limited or give up 34.28% of portfolio value over 90 days.

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

ITI Limited  vs.  VIP Clothing Limited

ITI Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITI Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

VIP Clothing Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days VIP Clothing Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical 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.

Pair Trading with ITI and VIP Clothing

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

The idea behind ITI Limited and VIP Clothing 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.