Correlation Between Indian Metals and Garware Hi

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

Diversification Opportunities for Indian Metals and Garware Hi

0.84

Correlation Coefficient

Indian Metals  Garware Hi

Very poor diversification

The 3 months correlation between Indian and Garware is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Garware Hi Tech Films in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garware Hi Tech 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 Garware Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garware Hi Tech has no effect on the direction of Indian Metals i.e., Indian Metals and Garware Hi go up and down completely randomly.

Pair Corralation between Indian Metals and Garware Hi

Assuming the 90 days trading horizon Indian Metals is expected to generate 1.7 times less return on investment than Garware Hi. But when comparing it to its historical volatility, Indian Metals Ferro is 1.58 times less risky than Garware Hi. It trades about 0.18 of its potential returns per unit of risk. Garware Hi Tech Films is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  323,656  in Garware Hi Tech Films on August 31, 2024 and sell it today you would earn a total of  169,744  from holding Garware Hi Tech Films or generate 52.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Indian Metals Ferro  vs.  Garware Hi Tech Films

Indian Metals Ferro

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 14 (%) 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.

Garware Hi Tech

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Garware Hi Tech Films are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Garware Hi unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Metals and Garware Hi

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

The idea behind Indian Metals Ferro and Garware Hi Tech Films 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.