Correlation Between Indian Metals and Gujarat Lease

Can any of the company-specific risk be diversified away by investing in both Indian Metals and Gujarat Lease 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 Gujarat Lease 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 Gujarat Lease Financing, you can compare the effects of market volatilities on Indian Metals and Gujarat Lease 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 Gujarat Lease. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Metals and Gujarat Lease.

Diversification Opportunities for Indian Metals and Gujarat Lease

0.23

Correlation Coefficient

Indian Metals  Gujarat Lease

Modest diversification

The 3 months correlation between Indian and Gujarat is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Gujarat Lease Financing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Lease Financing 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 Gujarat Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Lease Financing has no effect on the direction of Indian Metals i.e., Indian Metals and Gujarat Lease go up and down completely randomly.

Pair Corralation between Indian Metals and Gujarat Lease

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 0.98 times more return on investment than Gujarat Lease. However, Indian Metals Ferro is 1.02 times less risky than Gujarat Lease. It trades about 0.11 of its potential returns per unit of risk. Gujarat Lease Financing is currently generating about 0.08 per unit of risk. If you would invest  23,668  in Indian Metals Ferro on September 5, 2024 and sell it today you would earn a total of  63,567  from holding Indian Metals Ferro or generate 268.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Indian Metals Ferro  vs.  Gujarat Lease Financing

Indian Metals Ferro

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 17 (%) 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.

Gujarat Lease Financing

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Gujarat Lease unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Metals and Gujarat Lease

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

The idea behind Indian Metals Ferro and Gujarat Lease Financing 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.