Correlation Between Action Construction and Indian Railway

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

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

Diversification Opportunities for Action Construction and Indian Railway

0.62

Correlation Coefficient

Action Construction  Indian Railway

Poor diversification

The 3 months correlation between Action and Indian is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment 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 Action Construction 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 Action Construction Equipment 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 Action Construction i.e., Action Construction and Indian Railway go up and down completely randomly.

Pair Corralation between Action Construction and Indian Railway

Assuming the 90 days trading horizon Action Construction is expected to generate 1.02 times less return on investment than Indian Railway. But when comparing it to its historical volatility, Action Construction Equipment is 1.12 times less risky than Indian Railway. It trades about 0.12 of its potential returns per unit of risk. Indian Railway Finance is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,202  in Indian Railway Finance on September 26, 2024 and sell it today you would earn a total of  11,584  from holding Indian Railway Finance or generate 361.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.59%
Values	Daily Returns

Action Construction Equipment  vs.  Indian Railway Finance

Action Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Action Construction may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Action Construction and Indian Railway

The main advantage of trading using opposite Action Construction and Indian Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Action Construction 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 Action Construction Equipment 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.