Correlation Between NIFTY SUMER and Mazagon Dock

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

Diversification Opportunities for NIFTY SUMER and Mazagon Dock

-0.1

Correlation Coefficient

NIFTY SUMER  Mazagon Dock

Good diversification

The 3 months correlation between NIFTY and Mazagon is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and Mazagon Dock Shipbuilders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mazagon Dock Shipbuilders 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 Mazagon Dock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mazagon Dock Shipbuilders has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Mazagon Dock go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Mazagon Dock

Assuming the 90 days trading horizon NIFTY SUMER is expected to generate 25.97 times less return on investment than Mazagon Dock. But when comparing it to its historical volatility, NIFTY SUMER DURABLES is 49.66 times less risky than Mazagon Dock. It trades about 0.1 of its potential returns per unit of risk. Mazagon Dock Shipbuilders is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  36,024  in Mazagon Dock Shipbuilders on October 25, 2024 and sell it today you would earn a total of  192,751  from holding Mazagon Dock Shipbuilders or generate 535.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

NIFTY SUMER DURABLES  vs.  Mazagon Dock Shipbuilders

Pair Trading with NIFTY SUMER and Mazagon Dock

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

The idea behind NIFTY SUMER DURABLES and Mazagon Dock Shipbuilders 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.