Correlation Between CMT and ITC

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

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

Diversification Opportunities for CMT and ITC

-0.61

Correlation Coefficient

CMT  ITC

Excellent diversification

The 3 months correlation between CMT and ITC is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding CMT and ITC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITC and CMT 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 CMT are associated (or correlated) with ITC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITC has no effect on the direction of CMT i.e., CMT and ITC go up and down completely randomly.

Pair Corralation between CMT and ITC

If you would invest  0.98  in ITC on February 7, 2024 and sell it today you would earn a total of  0.00  from holding ITC or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	4.76%
Values	Daily Returns

CMT  vs.  ITC

CMT

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMT are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CMT exhibited solid returns over the last few months and may actually be approaching a breakup point.

ITC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, ITC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CMT and ITC

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

The idea behind CMT and ITC 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.