Correlation Between IG Petrochemicals and Edelweiss Financial

Can any of the company-specific risk be diversified away by investing in both IG Petrochemicals and Edelweiss Financial 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 IG Petrochemicals and Edelweiss Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IG Petrochemicals Limited and Edelweiss Financial Services, you can compare the effects of market volatilities on IG Petrochemicals and Edelweiss Financial 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 IG Petrochemicals with a short position of Edelweiss Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of IG Petrochemicals and Edelweiss Financial.

Diversification Opportunities for IG Petrochemicals and Edelweiss Financial

0.69

Correlation Coefficient

IG Petrochemicals  Edelweiss Financial

Poor diversification

The 3 months correlation between IGPL and Edelweiss is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding IG Petrochemicals Limited and Edelweiss Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edelweiss Financial and IG Petrochemicals 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 IG Petrochemicals Limited are associated (or correlated) with Edelweiss Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edelweiss Financial has no effect on the direction of IG Petrochemicals i.e., IG Petrochemicals and Edelweiss Financial go up and down completely randomly.

Pair Corralation between IG Petrochemicals and Edelweiss Financial

Assuming the 90 days trading horizon IG Petrochemicals is expected to generate 5.98 times less return on investment than Edelweiss Financial. But when comparing it to its historical volatility, IG Petrochemicals Limited is 1.19 times less risky than Edelweiss Financial. It trades about 0.04 of its potential returns per unit of risk. Edelweiss Financial Services is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  10,848  in Edelweiss Financial Services on September 27, 2024 and sell it today you would earn a total of  1,725  from holding Edelweiss Financial Services or generate 15.9% return on investment over 90 days.

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

IG Petrochemicals Limited  vs.  Edelweiss Financial Services

IG Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IG Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IG Petrochemicals is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Edelweiss Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edelweiss Financial Services 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.

Pair Trading with IG Petrochemicals and Edelweiss Financial

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

The idea behind IG Petrochemicals Limited and Edelweiss Financial Services 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.