Correlation Between Indian Metals and Hisar Metal

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

Diversification Opportunities for Indian Metals and Hisar Metal

-0.46

Correlation Coefficient

Indian Metals  Hisar Metal

Very good diversification

The 3 months correlation between Indian and Hisar is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Hisar Metal Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hisar Metal Industries 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 Hisar Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hisar Metal Industries has no effect on the direction of Indian Metals i.e., Indian Metals and Hisar Metal go up and down completely randomly.

Pair Corralation between Indian Metals and Hisar Metal

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 0.87 times more return on investment than Hisar Metal. However, Indian Metals Ferro is 1.15 times less risky than Hisar Metal. It trades about 0.12 of its potential returns per unit of risk. Hisar Metal Industries is currently generating about 0.04 per unit of risk. If you would invest  22,405  in Indian Metals Ferro on September 12, 2024 and sell it today you would earn a total of  74,310  from holding Indian Metals Ferro or generate 331.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Indian Metals Ferro  vs.  Hisar Metal Industries

Indian Metals Ferro

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 21 (%) 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.

Hisar Metal Industries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hisar Metal Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Hisar Metal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Indian Metals and Hisar Metal

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

The idea behind Indian Metals Ferro and Hisar Metal Industries 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.

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.