Correlation Between S P and ITI

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

Diversification Opportunities for S P and ITI

0.3

Correlation Coefficient

S P  ITI

Weak diversification

The 3 months correlation between SPAL and ITI is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding S P Apparels and ITI Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITI 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 ITI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITI Limited has no effect on the direction of S P i.e., S P and ITI go up and down completely randomly.

Pair Corralation between S P and ITI

Assuming the 90 days trading horizon S P is expected to generate 69.41 times less return on investment than ITI. But when comparing it to its historical volatility, S P Apparels is 2.52 times less risky than ITI. It trades about 0.01 of its potential returns per unit of risk. ITI Limited is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  22,085  in ITI Limited on October 24, 2024 and sell it today you would earn a total of  14,560  from holding ITI Limited or generate 65.93% 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.  ITI Limited

S P Apparels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days S P Apparels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, S P is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

ITI Limited

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITI Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, ITI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with S P and ITI

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

The idea behind S P Apparels and ITI 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.