Correlation Between NIFTY SUMER and Engineers India

Can any of the company-specific risk be diversified away by investing in both NIFTY SUMER and Engineers India 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 Engineers India 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 Engineers India Limited, you can compare the effects of market volatilities on NIFTY SUMER and Engineers India 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 Engineers India. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIFTY SUMER and Engineers India.

Diversification Opportunities for NIFTY SUMER and Engineers India

0.71

Correlation Coefficient

NIFTY SUMER  Engineers India

Poor diversification

The 3 months correlation between NIFTY and Engineers is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and Engineers India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engineers India 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 Engineers India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engineers India has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Engineers India go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Engineers India

Assuming the 90 days trading horizon NIFTY SUMER DURABLES is expected to generate 0.33 times more return on investment than Engineers India. However, NIFTY SUMER DURABLES is 3.01 times less risky than Engineers India. It trades about 0.2 of its potential returns per unit of risk. Engineers India Limited is currently generating about 0.04 per unit of risk. If you would invest  3,977,520  in NIFTY SUMER DURABLES on September 23, 2024 and sell it today you would earn a total of  152,945  from holding NIFTY SUMER DURABLES or generate 3.85% return on investment over 90 days.

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

NIFTY SUMER DURABLES  vs.  Engineers India Limited

Pair Trading with NIFTY SUMER and Engineers India

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

The idea behind NIFTY SUMER DURABLES and Engineers India 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.