Correlation Between Investment Trust and Indian Railway

Can any of the company-specific risk be diversified away by investing in both Investment Trust and Indian Railway 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 Investment Trust and Indian Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Investment Trust and Indian Railway Finance, you can compare the effects of market volatilities on Investment Trust and Indian Railway 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 Investment Trust with a short position of Indian Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment Trust and Indian Railway.

Diversification Opportunities for Investment Trust and Indian Railway

-0.02

Correlation Coefficient

Investment Trust  Indian Railway

Good diversification

The 3 months correlation between Investment and Indian is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding The Investment Trust and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance and Investment Trust 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 The Investment Trust are associated (or correlated) with Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of Investment Trust i.e., Investment Trust and Indian Railway go up and down completely randomly.

Pair Corralation between Investment Trust and Indian Railway

Assuming the 90 days trading horizon The Investment Trust is expected to under-perform the Indian Railway. But the stock apears to be less risky and, when comparing its historical volatility, The Investment Trust is 1.93 times less risky than Indian Railway. The stock trades about -0.19 of its potential returns per unit of risk. The Indian Railway Finance is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  14,669  in Indian Railway Finance on September 27, 2024 and sell it today you would earn a total of  117.00  from holding Indian Railway Finance or generate 0.8% return on investment over 90 days.

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

The Investment Trust  vs.  Indian Railway Finance

Investment Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Investment Trust and Indian Railway

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

The idea behind The Investment Trust and Indian Railway 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.