Correlation Between Western India and Iris Clothings

Can any of the company-specific risk be diversified away by investing in both Western India and Iris Clothings 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 Western India and Iris Clothings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Western India and Iris Clothings Limited, you can compare the effects of market volatilities on Western India and Iris Clothings 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 Western India with a short position of Iris Clothings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western India and Iris Clothings.

Diversification Opportunities for Western India and Iris Clothings

-0.41

Correlation Coefficient

Western India  Iris Clothings

Very good diversification

The 3 months correlation between Western and Iris is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding The Western India and Iris Clothings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iris Clothings and Western India 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 The Western India are associated (or correlated) with Iris Clothings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iris Clothings has no effect on the direction of Western India i.e., Western India and Iris Clothings go up and down completely randomly.

Pair Corralation between Western India and Iris Clothings

Assuming the 90 days trading horizon The Western India is expected to under-perform the Iris Clothings. But the stock apears to be less risky and, when comparing its historical volatility, The Western India is 1.02 times less risky than Iris Clothings. The stock trades about -0.35 of its potential returns per unit of risk. The Iris Clothings Limited is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  6,220  in Iris Clothings Limited on October 25, 2024 and sell it today you would lose (164.00) from holding Iris Clothings Limited or give up 2.64% of portfolio value over 90 days.

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

The Western India  vs.  Iris Clothings Limited

Western India

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Western India are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Western India unveiled solid returns over the last few months and may actually be approaching a breakup point.

Iris Clothings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iris Clothings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Iris Clothings is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Western India and Iris Clothings

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

The idea behind The Western India and Iris Clothings 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.