Correlation Between MCX ICOMDEX and UTI Asset

Can any of the company-specific risk be diversified away by investing in both MCX ICOMDEX and UTI Asset 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 MCX ICOMDEX and UTI Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MCX ICOMDEX ALUMINIUM and UTI Asset Management, you can compare the effects of market volatilities on MCX ICOMDEX and UTI Asset 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 MCX ICOMDEX with a short position of UTI Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of MCX ICOMDEX and UTI Asset.

Diversification Opportunities for MCX ICOMDEX and UTI Asset

0.57

Correlation Coefficient

MCX ICOMDEX  UTI Asset

Very weak diversification

The 3 months correlation between MCX and UTI is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding MCX ICOMDEX ALUMINIUM and UTI Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UTI Asset Management and MCX ICOMDEX 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 MCX ICOMDEX ALUMINIUM are associated (or correlated) with UTI Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UTI Asset Management has no effect on the direction of MCX ICOMDEX i.e., MCX ICOMDEX and UTI Asset go up and down completely randomly.

Pair Corralation between MCX ICOMDEX and UTI Asset

Assuming the 90 days trading horizon MCX ICOMDEX is expected to generate 1.41 times less return on investment than UTI Asset. But when comparing it to its historical volatility, MCX ICOMDEX ALUMINIUM is 2.19 times less risky than UTI Asset. It trades about 0.09 of its potential returns per unit of risk. UTI Asset Management is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  119,220  in UTI Asset Management on August 31, 2024 and sell it today you would earn a total of  9,515  from holding UTI Asset Management or generate 7.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	70.97%
Values	Daily Returns

MCX ICOMDEX ALUMINIUM  vs.  UTI Asset Management

Pair Trading with MCX ICOMDEX and UTI Asset

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

The idea behind MCX ICOMDEX ALUMINIUM and UTI Asset Management 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .