Correlation Between Nippon Life and Repco Home

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

By analyzing existing cross correlation between Nippon Life India and Repco Home Finance, you can compare the effects of market volatilities on Nippon Life and Repco Home 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 Nippon Life with a short position of Repco Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Life and Repco Home.

Diversification Opportunities for Nippon Life and Repco Home

-0.38

Correlation Coefficient

Nippon Life  Repco Home

Very good diversification

The 3 months correlation between Nippon and Repco is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Life India and Repco Home Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Repco Home Finance and Nippon Life 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 Nippon Life India are associated (or correlated) with Repco Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Repco Home Finance has no effect on the direction of Nippon Life i.e., Nippon Life and Repco Home go up and down completely randomly.

Pair Corralation between Nippon Life and Repco Home

Assuming the 90 days trading horizon Nippon Life India is expected to generate 1.22 times more return on investment than Repco Home. However, Nippon Life is 1.22 times more volatile than Repco Home Finance. It trades about 0.03 of its potential returns per unit of risk. Repco Home Finance is currently generating about -0.01 per unit of risk. If you would invest  67,643  in Nippon Life India on August 31, 2024 and sell it today you would earn a total of  1,462  from holding Nippon Life India or generate 2.16% return on investment over 90 days.

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

Nippon Life India  vs.  Repco Home Finance

Nippon Life India

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Life India are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Nippon Life is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Repco Home Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Repco Home Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Repco Home is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nippon Life and Repco Home

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

The idea behind Nippon Life India and Repco Home Finance 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.