Correlation Between Rama Steel and India Glycols

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

Diversification Opportunities for Rama Steel and India Glycols

0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between Rama and India is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Rama Steel Tubes and India Glycols Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on India Glycols Limited and Rama Steel 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 Rama Steel Tubes are associated (or correlated) with India Glycols. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of India Glycols Limited has no effect on the direction of Rama Steel i.e., Rama Steel and India Glycols go up and down completely randomly.

Pair Corralation between Rama Steel and India Glycols

Assuming the 90 days trading horizon Rama Steel Tubes is expected to under-perform the India Glycols. But the stock apears to be less risky and, when comparing its historical volatility, Rama Steel Tubes is 1.33 times less risky than India Glycols. The stock trades about -0.26 of its potential returns per unit of risk. The India Glycols Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  119,840  in India Glycols Limited on September 2, 2024 and sell it today you would earn a total of  7,755  from holding India Glycols Limited or generate 6.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Rama Steel Tubes  vs.  India Glycols Limited

 Performance 
       Timeline  
Rama Steel Tubes 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Rama Steel Tubes are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Rama Steel exhibited solid returns over the last few months and may actually be approaching a breakup point.
India Glycols Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days India Glycols Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, India Glycols is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Rama Steel and India Glycols Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rama Steel and India Glycols

The main advantage of trading using opposite Rama Steel and India Glycols positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rama Steel position performs unexpectedly, India Glycols 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 India Glycols will offset losses from the drop in India Glycols' long position.
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The idea behind Rama Steel Tubes and India Glycols 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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