Correlation Between Alkali Metals and Coal India

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Can any of the company-specific risk be diversified away by investing in both Alkali Metals and Coal India 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 Alkali Metals and Coal India into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alkali Metals Limited and Coal India Limited, you can compare the effects of market volatilities on Alkali Metals and Coal India 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 Alkali Metals with a short position of Coal India. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alkali Metals and Coal India.

Diversification Opportunities for Alkali Metals and Coal India

0.33
  Correlation Coefficient

Weak diversification

The 3 months correlation between Alkali and Coal is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Alkali Metals Limited and Coal India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coal India Limited and Alkali 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 Alkali Metals Limited are associated (or correlated) with Coal India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coal India Limited has no effect on the direction of Alkali Metals i.e., Alkali Metals and Coal India go up and down completely randomly.

Pair Corralation between Alkali Metals and Coal India

Assuming the 90 days trading horizon Alkali Metals Limited is expected to generate 1.62 times more return on investment than Coal India. However, Alkali Metals is 1.62 times more volatile than Coal India Limited. It trades about 0.03 of its potential returns per unit of risk. Coal India Limited is currently generating about -0.05 per unit of risk. If you would invest  10,913  in Alkali Metals Limited on September 1, 2024 and sell it today you would earn a total of  713.00  from holding Alkali Metals Limited or generate 6.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Alkali Metals Limited  vs.  Coal India Limited

 Performance 
       Timeline  
Alkali Metals Limited 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Alkali Metals Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Alkali Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Coal India Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Coal India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Alkali Metals and Coal India Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alkali Metals and Coal India

The main advantage of trading using opposite Alkali Metals and Coal India positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alkali Metals position performs unexpectedly, Coal India 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 Coal India will offset losses from the drop in Coal India's long position.
The idea behind Alkali Metals Limited and Coal India Limited 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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