Correlation Between UltraTech Cement and Vulcan Materials

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

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

Diversification Opportunities for UltraTech Cement and Vulcan Materials

0.0

Correlation Coefficient

UltraTech Cement  Vulcan Materials

Pay attention - limited upside

The 3 months correlation between UltraTech and Vulcan is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding UltraTech Cement Limited and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials and UltraTech Cement 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 UltraTech Cement Limited are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of UltraTech Cement i.e., UltraTech Cement and Vulcan Materials go up and down completely randomly.

Pair Corralation between UltraTech Cement and Vulcan Materials

Assuming the 90 days horizon UltraTech Cement is expected to generate 41.35 times less return on investment than Vulcan Materials. But when comparing it to its historical volatility, UltraTech Cement Limited is 35.26 times less risky than Vulcan Materials. It trades about 0.06 of its potential returns per unit of risk. Vulcan Materials is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  17,248  in Vulcan Materials on September 13, 2024 and sell it today you would earn a total of  10,563  from holding Vulcan Materials or generate 61.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

UltraTech Cement Limited  vs.  Vulcan Materials

UltraTech Cement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UltraTech Cement Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, UltraTech Cement is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vulcan Materials

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with UltraTech Cement and Vulcan Materials

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

The idea behind UltraTech Cement Limited and Vulcan Materials 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 Global Correlations module to find global opportunities by holding instruments from different markets.