Correlation Between Sarthak Metals and NIFTY SUMER

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

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

Diversification Opportunities for Sarthak Metals and NIFTY SUMER

0.4

Correlation Coefficient

Sarthak Metals  NIFTY SUMER

Very weak diversification

The 3 months correlation between Sarthak and NIFTY is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Sarthak Metals Limited and NIFTY SUMER DURABLES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIFTY SUMER DURABLES and Sarthak Metals 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 Sarthak Metals Limited are associated (or correlated) with NIFTY SUMER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIFTY SUMER DURABLES has no effect on the direction of Sarthak Metals i.e., Sarthak Metals and NIFTY SUMER go up and down completely randomly.

Pair Corralation between Sarthak Metals and NIFTY SUMER

Assuming the 90 days trading horizon Sarthak Metals Limited is expected to generate 3.49 times more return on investment than NIFTY SUMER. However, Sarthak Metals is 3.49 times more volatile than NIFTY SUMER DURABLES. It trades about 0.13 of its potential returns per unit of risk. NIFTY SUMER DURABLES is currently generating about 0.19 per unit of risk. If you would invest  15,677  in Sarthak Metals Limited on October 6, 2024 and sell it today you would earn a total of  1,178  from holding Sarthak Metals Limited or generate 7.51% return on investment over 90 days.

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

Sarthak Metals Limited  vs.  NIFTY SUMER DURABLES

Pair Trading with Sarthak Metals and NIFTY SUMER

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

The idea behind Sarthak Metals Limited and NIFTY SUMER DURABLES 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 Transaction History module to view history of all your transactions and understand their impact on performance.