Correlation Between Indian Metals and HeidelbergCement

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

Diversification Opportunities for Indian Metals and HeidelbergCement

-0.44
  Correlation Coefficient

Very good diversification

The 3 months correlation between Indian and HeidelbergCement is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and HeidelbergCement India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeidelbergCement India 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 HeidelbergCement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeidelbergCement India has no effect on the direction of Indian Metals i.e., Indian Metals and HeidelbergCement go up and down completely randomly.

Pair Corralation between Indian Metals and HeidelbergCement

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 2.07 times more return on investment than HeidelbergCement. However, Indian Metals is 2.07 times more volatile than HeidelbergCement India Limited. It trades about 0.47 of its potential returns per unit of risk. HeidelbergCement India Limited is currently generating about -0.05 per unit of risk. If you would invest  66,364  in Indian Metals Ferro on September 5, 2024 and sell it today you would earn a total of  20,871  from holding Indian Metals Ferro or generate 31.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Indian Metals Ferro  vs.  HeidelbergCement India Limited

 Performance 
       Timeline  
Indian Metals Ferro 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 17 (%) 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.
HeidelbergCement India 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days HeidelbergCement India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, HeidelbergCement is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Indian Metals and HeidelbergCement Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Indian Metals and HeidelbergCement

The main advantage of trading using opposite Indian Metals and HeidelbergCement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian Metals position performs unexpectedly, HeidelbergCement 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 HeidelbergCement will offset losses from the drop in HeidelbergCement's long position.
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The idea behind Indian Metals Ferro and HeidelbergCement 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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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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