Correlation Between Indian Metals and Bharti Airtel

Can any of the company-specific risk be diversified away by investing in both Indian Metals and Bharti Airtel 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 Indian Metals and Bharti Airtel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indian Metals Ferro and Bharti Airtel Limited, you can compare the effects of market volatilities on Indian Metals and Bharti Airtel 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 Indian Metals with a short position of Bharti Airtel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Metals and Bharti Airtel.

Diversification Opportunities for Indian Metals and Bharti Airtel

-0.48

Correlation Coefficient

Indian Metals  Bharti Airtel

Very good diversification

The 3 months correlation between Indian and Bharti is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Bharti Airtel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bharti Airtel Limited and Indian Metals 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 Indian Metals Ferro are associated (or correlated) with Bharti Airtel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bharti Airtel Limited has no effect on the direction of Indian Metals i.e., Indian Metals and Bharti Airtel go up and down completely randomly.

Pair Corralation between Indian Metals and Bharti Airtel

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.88 times more return on investment than Bharti Airtel. However, Indian Metals is 1.88 times more volatile than Bharti Airtel Limited. It trades about 0.24 of its potential returns per unit of risk. Bharti Airtel Limited is currently generating about 0.04 per unit of risk. If you would invest  66,039  in Indian Metals Ferro on September 14, 2024 and sell it today you would earn a total of  29,431  from holding Indian Metals Ferro or generate 44.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Indian Metals Ferro  vs.  Bharti Airtel Limited

Indian Metals Ferro

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bharti Airtel Limited

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bharti Airtel Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bharti Airtel is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Indian Metals and Bharti Airtel

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

The idea behind Indian Metals Ferro and Bharti Airtel 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.