Correlation Between Indian Railway and Muthoot Finance

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

Diversification Opportunities for Indian Railway and Muthoot Finance

0.53

Correlation Coefficient

Indian Railway  Muthoot Finance

Very weak diversification

The 3 months correlation between Indian and Muthoot is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and Muthoot Finance Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Muthoot Finance 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 Muthoot Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Muthoot Finance has no effect on the direction of Indian Railway i.e., Indian Railway and Muthoot Finance go up and down completely randomly.

Pair Corralation between Indian Railway and Muthoot Finance

Assuming the 90 days trading horizon Indian Railway Finance is expected to under-perform the Muthoot Finance. In addition to that, Indian Railway is 1.54 times more volatile than Muthoot Finance Limited. It trades about -0.1 of its total potential returns per unit of risk. Muthoot Finance Limited is currently generating about -0.02 per unit of volatility. If you would invest  196,500  in Muthoot Finance Limited on September 2, 2024 and sell it today you would lose (4,795) from holding Muthoot Finance Limited or give up 2.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Indian Railway Finance  vs.  Muthoot Finance Limited

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.

Muthoot Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Muthoot Finance Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Muthoot Finance is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Indian Railway and Muthoot Finance

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

The idea behind Indian Railway Finance and Muthoot Finance Limited 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.