Correlation Between Indian Railway and Indian Renewable

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

Diversification Opportunities for Indian Railway and Indian Renewable

0.84

Correlation Coefficient

Indian Railway  Indian Renewable

Very poor diversification

The 3 months correlation between Indian and Indian is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and Indian Renewable Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Renewable Energy 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 Indian Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Renewable Energy has no effect on the direction of Indian Railway i.e., Indian Railway and Indian Renewable go up and down completely randomly.

Pair Corralation between Indian Railway and Indian Renewable

Assuming the 90 days trading horizon Indian Railway Finance is expected to under-perform the Indian Renewable. But the stock apears to be less risky and, when comparing its historical volatility, Indian Railway Finance is 1.02 times less risky than Indian Renewable. The stock trades about -0.1 of its potential returns per unit of risk. The Indian Renewable Energy is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  23,893  in Indian Renewable Energy on September 2, 2024 and sell it today you would lose (3,377) from holding Indian Renewable Energy or give up 14.13% of portfolio value over 90 days.

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

Indian Railway Finance  vs.  Indian Renewable Energy

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 uncertain 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.

Indian Renewable Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Renewable Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Indian Railway and Indian Renewable

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

The idea behind Indian Railway Finance and Indian Renewable Energy 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..