Correlation Between AMS Small and MCX ICOMDEX

Can any of the company-specific risk be diversified away by investing in both AMS Small and MCX ICOMDEX 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 AMS Small and MCX ICOMDEX into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AMS Small Cap and MCX ICOMDEX ALUMINIUM, you can compare the effects of market volatilities on AMS Small and MCX ICOMDEX 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 AMS Small with a short position of MCX ICOMDEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and MCX ICOMDEX.

Diversification Opportunities for AMS Small and MCX ICOMDEX

0.07

Correlation Coefficient

AMS Small  MCX ICOMDEX

Significant diversification

The 3 months correlation between AMS and MCX is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and MCX ICOMDEX ALUMINIUM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCX ICOMDEX ALUMINIUM and AMS Small 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 AMS Small Cap are associated (or correlated) with MCX ICOMDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCX ICOMDEX ALUMINIUM has no effect on the direction of AMS Small i.e., AMS Small and MCX ICOMDEX go up and down completely randomly.

Pair Corralation between AMS Small and MCX ICOMDEX

Assuming the 90 days trading horizon AMS Small Cap is expected to under-perform the MCX ICOMDEX. But the index apears to be less risky and, when comparing its historical volatility, AMS Small Cap is 1.22 times less risky than MCX ICOMDEX. The index trades about -0.04 of its potential returns per unit of risk. The MCX ICOMDEX ALUMINIUM is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,133,856  in MCX ICOMDEX ALUMINIUM on August 30, 2024 and sell it today you would earn a total of  40,665  from holding MCX ICOMDEX ALUMINIUM or generate 3.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	70.31%
Values	Daily Returns

AMS Small Cap  vs.  MCX ICOMDEX ALUMINIUM

Pair Trading with AMS Small and MCX ICOMDEX

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

The idea behind AMS Small Cap and MCX ICOMDEX ALUMINIUM 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.