Correlation Between Indus and Millat Tractors
Can any of the company-specific risk be diversified away by investing in both Indus and Millat Tractors 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 Indus and Millat Tractors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Indus Motor and Millat Tractors, you can compare the effects of market volatilities on Indus and Millat Tractors 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 Indus with a short position of Millat Tractors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indus and Millat Tractors.
Diversification Opportunities for Indus and Millat Tractors
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Indus and Millat is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Indus Motor and Millat Tractors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Millat Tractors and Indus 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 Indus Motor are associated (or correlated) with Millat Tractors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Millat Tractors has no effect on the direction of Indus i.e., Indus and Millat Tractors go up and down completely randomly.
Pair Corralation between Indus and Millat Tractors
Assuming the 90 days trading horizon Indus Motor is expected to generate 0.75 times more return on investment than Millat Tractors. However, Indus Motor is 1.33 times less risky than Millat Tractors. It trades about 0.22 of its potential returns per unit of risk. Millat Tractors is currently generating about 0.16 per unit of risk. If you would invest 169,026 in Indus Motor on September 12, 2024 and sell it today you would earn a total of 32,109 from holding Indus Motor or generate 19.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Indus Motor vs. Millat Tractors
Performance |
Timeline |
Indus Motor |
Millat Tractors |
Indus and Millat Tractors Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Indus and Millat Tractors
The main advantage of trading using opposite Indus and Millat Tractors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indus position performs unexpectedly, Millat Tractors 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 Millat Tractors will offset losses from the drop in Millat Tractors' long position.Indus vs. Security Investment Bank | Indus vs. International Steels | Indus vs. Metropolitan Steel Corp | Indus vs. Air Link Communication |
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Check out your portfolio center.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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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