Correlation Between Cholamandalam Financial and Indian Railway

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

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

Diversification Opportunities for Cholamandalam Financial and Indian Railway

-0.01

Correlation Coefficient

Cholamandalam Financial  Indian Railway

Good diversification

The 3 months correlation between Cholamandalam and Indian is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Cholamandalam Financial Holdin and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance and Cholamandalam Financial 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 Cholamandalam Financial Holdings are associated (or correlated) with Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of Cholamandalam Financial i.e., Cholamandalam Financial and Indian Railway go up and down completely randomly.

Pair Corralation between Cholamandalam Financial and Indian Railway

Assuming the 90 days trading horizon Cholamandalam Financial Holdings is expected to generate 1.0 times more return on investment than Indian Railway. However, Cholamandalam Financial is 1.0 times more volatile than Indian Railway Finance. It trades about -0.01 of its potential returns per unit of risk. Indian Railway Finance is currently generating about -0.1 per unit of risk. If you would invest  167,700  in Cholamandalam Financial Holdings on September 3, 2024 and sell it today you would lose (4,520) from holding Cholamandalam Financial Holdings or give up 2.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Cholamandalam Financial Holdin  vs.  Indian Railway Finance

Cholamandalam Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Cholamandalam Financial is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Indian Railway Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Railway Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Cholamandalam Financial and Indian Railway

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

The idea behind Cholamandalam Financial Holdings and Indian Railway Finance 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.