Correlation Between NIFTY SUMER and Suzlon Energy

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

Diversification Opportunities for NIFTY SUMER and Suzlon Energy

0.88

Correlation Coefficient

NIFTY SUMER  Suzlon Energy

Very poor diversification

The 3 months correlation between NIFTY and Suzlon is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and Suzlon Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzlon Energy 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 Suzlon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzlon Energy Limited has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Suzlon Energy go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Suzlon Energy

Assuming the 90 days trading horizon NIFTY SUMER DURABLES is expected to generate 0.53 times more return on investment than Suzlon Energy. However, NIFTY SUMER DURABLES is 1.88 times less risky than Suzlon Energy. It trades about -0.19 of its potential returns per unit of risk. Suzlon Energy Limited is currently generating about -0.15 per unit of risk. If you would invest  4,100,655  in NIFTY SUMER DURABLES on December 2, 2024 and sell it today you would lose (654,770) from holding NIFTY SUMER DURABLES or give up 15.97% of portfolio value over 90 days.

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

NIFTY SUMER DURABLES  vs.  Suzlon Energy Limited

Pair Trading with NIFTY SUMER and Suzlon Energy

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

The idea behind NIFTY SUMER DURABLES and Suzlon Energy 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.