Correlation Between ICICI Lombard and Sapphire Foods

Can any of the company-specific risk be diversified away by investing in both ICICI Lombard and Sapphire Foods 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 ICICI Lombard and Sapphire Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ICICI Lombard General and Sapphire Foods India, you can compare the effects of market volatilities on ICICI Lombard and Sapphire Foods 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 ICICI Lombard with a short position of Sapphire Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of ICICI Lombard and Sapphire Foods.

Diversification Opportunities for ICICI Lombard and Sapphire Foods

0.76

Correlation Coefficient

ICICI Lombard  Sapphire Foods

Poor diversification

The 3 months correlation between ICICI and Sapphire is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding ICICI Lombard General and Sapphire Foods India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sapphire Foods India and ICICI Lombard 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 ICICI Lombard General are associated (or correlated) with Sapphire Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sapphire Foods India has no effect on the direction of ICICI Lombard i.e., ICICI Lombard and Sapphire Foods go up and down completely randomly.

Pair Corralation between ICICI Lombard and Sapphire Foods

Assuming the 90 days trading horizon ICICI Lombard is expected to generate 10.05 times less return on investment than Sapphire Foods. But when comparing it to its historical volatility, ICICI Lombard General is 16.95 times less risky than Sapphire Foods. It trades about 0.09 of its potential returns per unit of risk. Sapphire Foods India is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  28,098  in Sapphire Foods India on September 12, 2024 and sell it today you would earn a total of  4,442  from holding Sapphire Foods India or generate 15.81% return on investment over 90 days.

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

ICICI Lombard General  vs.  Sapphire Foods India

ICICI Lombard General

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ICICI Lombard General has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Sapphire Foods is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ICICI Lombard and Sapphire Foods

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

The idea behind ICICI Lombard General and Sapphire Foods India 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.