Correlation Between Indian Railway and Cholamandalam Financial

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

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

Diversification Opportunities for Indian Railway and Cholamandalam Financial

-0.01

Correlation Coefficient

Indian Railway  Cholamandalam Financial

Good diversification

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

Pair Corralation between Indian Railway and Cholamandalam Financial

Assuming the 90 days trading horizon Indian Railway Finance is expected to under-perform the Cholamandalam Financial. But the stock apears to be less risky and, when comparing its historical volatility, Indian Railway Finance is 1.0 times less risky than Cholamandalam Financial. The stock trades about -0.1 of its potential returns per unit of risk. The Cholamandalam Financial Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. 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

Indian Railway Finance  vs.  Cholamandalam Financial Holdin

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.

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.

Pair Trading with Indian Railway and Cholamandalam Financial

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

The idea behind Indian Railway Finance and Cholamandalam Financial Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.