Correlation Between NIFTY SUMER and Automotive Stampings

Can any of the company-specific risk be diversified away by investing in both NIFTY SUMER and Automotive Stampings 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 NIFTY SUMER and Automotive Stampings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NIFTY SUMER DURABLES and Automotive Stampings and, you can compare the effects of market volatilities on NIFTY SUMER and Automotive Stampings 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 NIFTY SUMER with a short position of Automotive Stampings. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIFTY SUMER and Automotive Stampings.

Diversification Opportunities for NIFTY SUMER and Automotive Stampings

0.8

Correlation Coefficient

NIFTY SUMER  Automotive Stampings

Very poor diversification

The 3 months correlation between NIFTY and Automotive is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and Automotive Stampings and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automotive Stampings and and NIFTY SUMER 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 NIFTY SUMER DURABLES are associated (or correlated) with Automotive Stampings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automotive Stampings and has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Automotive Stampings go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Automotive Stampings

Assuming the 90 days trading horizon NIFTY SUMER is expected to generate 1.69 times less return on investment than Automotive Stampings. But when comparing it to its historical volatility, NIFTY SUMER DURABLES is 3.82 times less risky than Automotive Stampings. It trades about 0.12 of its potential returns per unit of risk. Automotive Stampings and is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  37,060  in Automotive Stampings and on September 24, 2024 and sell it today you would earn a total of  29,605  from holding Automotive Stampings and or generate 79.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.18%
Values	Daily Returns

NIFTY SUMER DURABLES  vs.  Automotive Stampings and

Pair Trading with NIFTY SUMER and Automotive Stampings

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

The idea behind NIFTY SUMER DURABLES and Automotive Stampings and 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.