Correlation Between National Foods and Indus

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

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

Diversification Opportunities for National Foods and Indus

0.67

Correlation Coefficient

National Foods  Indus

Poor diversification

The 3 months correlation between National and Indus is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding National Foods and Indus Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indus Motor and National Foods 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 National Foods are associated (or correlated) with Indus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indus Motor has no effect on the direction of National Foods i.e., National Foods and Indus go up and down completely randomly.

Pair Corralation between National Foods and Indus

Assuming the 90 days trading horizon National Foods is expected to generate 0.94 times more return on investment than Indus. However, National Foods is 1.06 times less risky than Indus. It trades about -0.07 of its potential returns per unit of risk. Indus Motor is currently generating about -0.27 per unit of risk. If you would invest  18,941  in National Foods on October 25, 2024 and sell it today you would lose (357.00) from holding National Foods or give up 1.88% of portfolio value over 90 days.

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

National Foods  vs.  Indus Motor

National Foods

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Indus Motor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indus Motor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Indus sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Foods and Indus

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

The idea behind National Foods and Indus Motor 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..