Correlation Between Industrial and Railway Signal

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

By analyzing existing cross correlation between Industrial and Commercial and Railway Signal Communication, you can compare the effects of market volatilities on Industrial and Railway Signal 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 Industrial with a short position of Railway Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and Railway Signal.

Diversification Opportunities for Industrial and Railway Signal

-0.7

Correlation Coefficient

Industrial  Railway Signal

Excellent diversification

The 3 months correlation between Industrial and Railway is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Railway Signal Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Railway Signal Commu and Industrial 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 Industrial and Commercial are associated (or correlated) with Railway Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Railway Signal Commu has no effect on the direction of Industrial i.e., Industrial and Railway Signal go up and down completely randomly.

Pair Corralation between Industrial and Railway Signal

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 1.05 times more return on investment than Railway Signal. However, Industrial is 1.05 times more volatile than Railway Signal Communication. It trades about 0.14 of its potential returns per unit of risk. Railway Signal Communication is currently generating about -0.14 per unit of risk. If you would invest  621.00  in Industrial and Commercial on December 3, 2024 and sell it today you would earn a total of  66.00  from holding Industrial and Commercial or generate 10.63% return on investment over 90 days.

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

Industrial and Commercial  vs.  Railway Signal Communication

Industrial and Commercial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Railway Signal Commu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Railway Signal Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Industrial and Railway Signal

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

The idea behind Industrial and Commercial and Railway Signal Communication 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.