Correlation Between Shriram Finance and SBI Cards

Can any of the company-specific risk be diversified away by investing in both Shriram Finance and SBI Cards 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 Shriram Finance and SBI Cards into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shriram Finance Limited and SBI Cards and, you can compare the effects of market volatilities on Shriram Finance and SBI Cards 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 Shriram Finance with a short position of SBI Cards. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shriram Finance and SBI Cards.

Diversification Opportunities for Shriram Finance and SBI Cards

0.76

Correlation Coefficient

Shriram Finance  SBI Cards

Poor diversification

The 3 months correlation between Shriram and SBI is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Shriram Finance Limited and SBI Cards and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBI Cards and Shriram Finance 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 Shriram Finance Limited are associated (or correlated) with SBI Cards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBI Cards has no effect on the direction of Shriram Finance i.e., Shriram Finance and SBI Cards go up and down completely randomly.

Pair Corralation between Shriram Finance and SBI Cards

Assuming the 90 days trading horizon Shriram Finance Limited is expected to generate 1.42 times more return on investment than SBI Cards. However, Shriram Finance is 1.42 times more volatile than SBI Cards and. It trades about -0.04 of its potential returns per unit of risk. SBI Cards and is currently generating about -0.06 per unit of risk. If you would invest  320,298  in Shriram Finance Limited on September 2, 2024 and sell it today you would lose (18,333) from holding Shriram Finance Limited or give up 5.72% of portfolio value over 90 days.

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

Shriram Finance Limited  vs.  SBI Cards and

Shriram Finance

Risk-Adjusted Performance

0 of 100

Very Weak

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

SBI Cards

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBI Cards and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SBI Cards is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Shriram Finance and SBI Cards

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

The idea behind Shriram Finance Limited and SBI Cards and 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.