Correlation Between United Breweries and Indian Metals

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

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

Diversification Opportunities for United Breweries and Indian Metals

-0.02

Correlation Coefficient

United Breweries  Indian Metals

Good diversification

The 3 months correlation between United and Indian is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding United Breweries Limited and Indian Metals Ferro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Metals Ferro and United Breweries 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 United Breweries Limited are associated (or correlated) with Indian Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Metals Ferro has no effect on the direction of United Breweries i.e., United Breweries and Indian Metals go up and down completely randomly.

Pair Corralation between United Breweries and Indian Metals

Assuming the 90 days trading horizon United Breweries Limited is expected to generate 0.67 times more return on investment than Indian Metals. However, United Breweries Limited is 1.48 times less risky than Indian Metals. It trades about 0.19 of its potential returns per unit of risk. Indian Metals Ferro is currently generating about -0.13 per unit of risk. If you would invest  195,835  in United Breweries Limited on October 8, 2024 and sell it today you would earn a total of  11,740  from holding United Breweries Limited or generate 5.99% return on investment over 90 days.

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

United Breweries Limited  vs.  Indian Metals Ferro

United Breweries

Risk-Adjusted Performance

0 of 100

Weak

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

Indian Metals Ferro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Breweries and Indian Metals

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

The idea behind United Breweries Limited and Indian Metals Ferro 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.