Correlation Between NIFTY SUMER and Linc

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

Diversification Opportunities for NIFTY SUMER and Linc

0.63

Correlation Coefficient

NIFTY SUMER  Linc

Poor diversification

The 3 months correlation between NIFTY and Linc is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and Linc Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linc Limited 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 Linc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linc Limited has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Linc go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Linc

Assuming the 90 days trading horizon NIFTY SUMER DURABLES is expected to generate 0.39 times more return on investment than Linc. However, NIFTY SUMER DURABLES is 2.57 times less risky than Linc. It trades about 0.14 of its potential returns per unit of risk. Linc Limited is currently generating about 0.04 per unit of risk. If you would invest  3,088,075  in NIFTY SUMER DURABLES on September 19, 2024 and sell it today you would earn a total of  1,176,190  from holding NIFTY SUMER DURABLES or generate 38.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.77%
Values	Daily Returns

NIFTY SUMER DURABLES  vs.  Linc Limited

Pair Trading with NIFTY SUMER and Linc

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

The idea behind NIFTY SUMER DURABLES and Linc 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..