Correlation Between NIFTY SUMER and Banco Products

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

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

Diversification Opportunities for NIFTY SUMER and Banco Products

-0.17

Correlation Coefficient

NIFTY SUMER  Banco Products

Good diversification

The 3 months correlation between NIFTY and Banco is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and Banco Products Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Products and NIFTY SUMER 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 NIFTY SUMER DURABLES are associated (or correlated) with Banco Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Products has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Banco Products go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Banco Products

Assuming the 90 days trading horizon NIFTY SUMER is expected to generate 94.16 times less return on investment than Banco Products. But when comparing it to its historical volatility, NIFTY SUMER DURABLES is 158.83 times less risky than Banco Products. It trades about 0.25 of its potential returns per unit of risk. Banco Products Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  36,745  in Banco Products Limited on October 6, 2024 and sell it today you would earn a total of  11,545  from holding Banco Products Limited or generate 31.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.56%
Values	Daily Returns

NIFTY SUMER DURABLES  vs.  Banco Products Limited

Pair Trading with NIFTY SUMER and Banco Products

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

The idea behind NIFTY SUMER DURABLES and Banco Products 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.