Correlation Between Shyam Metalics and CEAT

Can any of the company-specific risk be diversified away by investing in both Shyam Metalics and CEAT 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 Shyam Metalics and CEAT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shyam Metalics and and CEAT Limited, you can compare the effects of market volatilities on Shyam Metalics and CEAT 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 Shyam Metalics with a short position of CEAT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shyam Metalics and CEAT.

Diversification Opportunities for Shyam Metalics and CEAT

0.05

Correlation Coefficient

Shyam Metalics  CEAT

Significant diversification

The 3 months correlation between Shyam and CEAT is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Shyam Metalics and and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Shyam Metalics 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 Shyam Metalics and are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of Shyam Metalics i.e., Shyam Metalics and CEAT go up and down completely randomly.

Pair Corralation between Shyam Metalics and CEAT

Assuming the 90 days trading horizon Shyam Metalics and is expected to generate 1.04 times more return on investment than CEAT. However, Shyam Metalics is 1.04 times more volatile than CEAT Limited. It trades about 0.11 of its potential returns per unit of risk. CEAT Limited is currently generating about -0.04 per unit of risk. If you would invest  73,438  in Shyam Metalics and on December 26, 2024 and sell it today you would earn a total of  12,002  from holding Shyam Metalics and or generate 16.34% return on investment over 90 days.

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

Shyam Metalics and  vs.  CEAT Limited

Shyam Metalics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shyam Metalics and are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Shyam Metalics exhibited solid returns over the last few months and may actually be approaching a breakup point.

CEAT Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CEAT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, CEAT is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Shyam Metalics and CEAT

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

The idea behind Shyam Metalics and and CEAT 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.