Correlation Between S P and Indo Amines

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

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

Diversification Opportunities for S P and Indo Amines

0.36

Correlation Coefficient

S P  Indo Amines

Weak diversification

The 3 months correlation between SPAL and Indo is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding S P Apparels and Indo Amines Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indo Amines Limited and S P 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 S P Apparels are associated (or correlated) with Indo Amines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indo Amines Limited has no effect on the direction of S P i.e., S P and Indo Amines go up and down completely randomly.

Pair Corralation between S P and Indo Amines

Assuming the 90 days trading horizon S P Apparels is expected to generate 0.7 times more return on investment than Indo Amines. However, S P Apparels is 1.42 times less risky than Indo Amines. It trades about 0.06 of its potential returns per unit of risk. Indo Amines Limited is currently generating about -0.08 per unit of risk. If you would invest  88,600  in S P Apparels on October 10, 2024 and sell it today you would earn a total of  6,005  from holding S P Apparels or generate 6.78% return on investment over 90 days.

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

S P Apparels  vs.  Indo Amines Limited

S P Apparels

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in S P Apparels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, S P may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Indo Amines Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Amines Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with S P and Indo Amines

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

The idea behind S P Apparels and Indo Amines 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.