Correlation Between Genpact and NL Industries

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

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

Diversification Opportunities for Genpact and NL Industries

0.5

Correlation Coefficient

Genpact  NL Industries

Very weak diversification

The 3 months correlation between Genpact and NL Industries is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Genpact Limited and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and Genpact 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 Genpact Limited are associated (or correlated) with NL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NL Industries has no effect on the direction of Genpact i.e., Genpact and NL Industries go up and down completely randomly.

Pair Corralation between Genpact and NL Industries

Taking into account the 90-day investment horizon Genpact is expected to generate 1.58 times less return on investment than NL Industries. But when comparing it to its historical volatility, Genpact Limited is 1.91 times less risky than NL Industries. It trades about 0.14 of its potential returns per unit of risk. NL Industries is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  676.00  in NL Industries on September 15, 2024 and sell it today you would earn a total of  152.00  from holding NL Industries or generate 22.49% return on investment over 90 days.

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

Genpact Limited  vs.  NL Industries

Genpact Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Genpact Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Genpact reported solid returns over the last few months and may actually be approaching a breakup point.

NL Industries

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Genpact and NL Industries

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

The idea behind Genpact Limited and NL 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.