Correlation Between NIFTY SUMER and SBI Cards

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

Diversification Opportunities for NIFTY SUMER and SBI Cards

0.86

Correlation Coefficient

NIFTY SUMER  SBI Cards

Very poor diversification

The 3 months correlation between NIFTY and SBI is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and SBI Cards and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Cards 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 SBI Cards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Cards has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and SBI Cards go up and down completely randomly.

Pair Corralation between NIFTY SUMER and SBI Cards

Assuming the 90 days trading horizon NIFTY SUMER DURABLES is expected to generate 0.78 times more return on investment than SBI Cards. However, NIFTY SUMER DURABLES is 1.28 times less risky than SBI Cards. It trades about 0.19 of its potential returns per unit of risk. SBI Cards and is currently generating about -0.15 per unit of risk. If you would invest  4,024,390  in NIFTY SUMER DURABLES on September 28, 2024 and sell it today you would earn a total of  146,490  from holding NIFTY SUMER DURABLES or generate 3.64% return on investment over 90 days.

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

NIFTY SUMER DURABLES  vs.  SBI Cards and

Pair Trading with NIFTY SUMER and SBI Cards

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

The idea behind NIFTY SUMER DURABLES and SBI Cards and 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.