Correlation Between Indian Railway and Summit Securities

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

Diversification Opportunities for Indian Railway and Summit Securities

-0.33

Correlation Coefficient

Indian Railway  Summit Securities

Very good diversification

The 3 months correlation between Indian and Summit is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and Summit Securities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Securities 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 Summit Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Securities has no effect on the direction of Indian Railway i.e., Indian Railway and Summit Securities go up and down completely randomly.

Pair Corralation between Indian Railway and Summit Securities

Assuming the 90 days trading horizon Indian Railway is expected to generate 1.51 times less return on investment than Summit Securities. In addition to that, Indian Railway is 1.03 times more volatile than Summit Securities Limited. It trades about 0.08 of its total potential returns per unit of risk. Summit Securities Limited is currently generating about 0.13 per unit of volatility. If you would invest  138,585  in Summit Securities Limited on September 13, 2024 and sell it today you would earn a total of  217,990  from holding Summit Securities Limited or generate 157.3% return on investment over 90 days.

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

Indian Railway Finance  vs.  Summit Securities 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 comparatively stable basic indicators, Indian Railway is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Summit Securities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Securities Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Summit Securities unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Railway and Summit Securities

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

The idea behind Indian Railway Finance and Summit Securities 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..