Correlation Between MCX ICOMDEX and Orient Technologies

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

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

Diversification Opportunities for MCX ICOMDEX and Orient Technologies

0.42

Correlation Coefficient

MCX ICOMDEX  Orient Technologies

Very weak diversification

The 3 months correlation between MCX and Orient is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding MCX ICOMDEX ALUMINIUM and Orient Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Technologies and MCX ICOMDEX 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 MCX ICOMDEX ALUMINIUM are associated (or correlated) with Orient Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Technologies has no effect on the direction of MCX ICOMDEX i.e., MCX ICOMDEX and Orient Technologies go up and down completely randomly.

Pair Corralation between MCX ICOMDEX and Orient Technologies

Assuming the 90 days trading horizon MCX ICOMDEX is expected to generate 4.23 times less return on investment than Orient Technologies. But when comparing it to its historical volatility, MCX ICOMDEX ALUMINIUM is 3.6 times less risky than Orient Technologies. It trades about 0.09 of its potential returns per unit of risk. Orient Technologies Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  31,671  in Orient Technologies Limited on August 31, 2024 and sell it today you would earn a total of  8,504  from holding Orient Technologies Limited or generate 26.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	70.97%
Values	Daily Returns

MCX ICOMDEX ALUMINIUM  vs.  Orient Technologies Limited

Pair Trading with MCX ICOMDEX and Orient Technologies

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

The idea behind MCX ICOMDEX ALUMINIUM and Orient Technologies 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .