Correlation Between N B and Indian Metals

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

By analyzing existing cross correlation between N B I and Indian Metals Ferro, you can compare the effects of market volatilities on N B and Indian Metals 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 N B with a short position of Indian Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of N B and Indian Metals.

Diversification Opportunities for N B and Indian Metals

0.9

Correlation Coefficient

N B  Indian Metals

Almost no diversification

The 3 months correlation between NBIFIN and Indian is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding N B I and Indian Metals Ferro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Metals Ferro and N B 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 N B I are associated (or correlated) with Indian Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Metals Ferro has no effect on the direction of N B i.e., N B and Indian Metals go up and down completely randomly.

Pair Corralation between N B and Indian Metals

Assuming the 90 days trading horizon N B I is expected to generate 1.09 times more return on investment than Indian Metals. However, N B is 1.09 times more volatile than Indian Metals Ferro. It trades about 0.11 of its potential returns per unit of risk. Indian Metals Ferro is currently generating about 0.1 per unit of risk. If you would invest  229,897  in N B I on October 10, 2024 and sell it today you would earn a total of  82,303  from holding N B I or generate 35.8% return on investment over 90 days.

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

N B I  vs.  Indian Metals Ferro

N B I

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in N B I are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, N B sustained solid returns over the last few months and may actually be approaching a breakup point.

Indian Metals Ferro

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with N B and Indian Metals

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

The idea behind N B I and Indian Metals Ferro 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.