Correlation Between NIFTY SUMER and Western India

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

Diversification Opportunities for NIFTY SUMER and Western India

0.54

Correlation Coefficient

NIFTY SUMER  Western India

Very weak diversification

The 3 months correlation between NIFTY and Western is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and The Western India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western 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 Western India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western India has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Western India go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Western India

Assuming the 90 days trading horizon NIFTY SUMER is expected to generate 12.18 times less return on investment than Western India. But when comparing it to its historical volatility, NIFTY SUMER DURABLES is 3.46 times less risky than Western India. It trades about 0.02 of its potential returns per unit of risk. The Western India is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  22,103  in The Western India on October 9, 2024 and sell it today you would earn a total of  763.00  from holding The Western India or generate 3.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

NIFTY SUMER DURABLES  vs.  The Western India

Pair Trading with NIFTY SUMER and Western India

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

The idea behind NIFTY SUMER DURABLES and The Western India 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.