Correlation Between Computer Age and Coal India

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

By analyzing existing cross correlation between Computer Age Management and Coal India Limited, you can compare the effects of market volatilities on Computer Age and Coal India 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 Computer Age with a short position of Coal India. Check out your portfolio center. Please also check ongoing floating volatility patterns of Computer Age and Coal India.

Diversification Opportunities for Computer Age and Coal India

-0.61

Correlation Coefficient

Computer Age  Coal India

Excellent diversification

The 3 months correlation between Computer and Coal is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Computer Age Management and Coal India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coal India Limited and Computer Age 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 Computer Age Management are associated (or correlated) with Coal India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coal India Limited has no effect on the direction of Computer Age i.e., Computer Age and Coal India go up and down completely randomly.

Pair Corralation between Computer Age and Coal India

Assuming the 90 days trading horizon Computer Age Management is expected to generate 1.76 times more return on investment than Coal India. However, Computer Age is 1.76 times more volatile than Coal India Limited. It trades about 0.09 of its potential returns per unit of risk. Coal India Limited is currently generating about -0.38 per unit of risk. If you would invest  489,335  in Computer Age Management on September 29, 2024 and sell it today you would earn a total of  14,840  from holding Computer Age Management or generate 3.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Computer Age Management  vs.  Coal India Limited

Computer Age Management

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Computer Age Management are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Computer Age unveiled solid returns over the last few months and may actually be approaching a breakup point.

Coal India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coal India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Computer Age and Coal India

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

The idea behind Computer Age Management and Coal India Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.