Correlation Between Cholamandalam Financial and ITI

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

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

Diversification Opportunities for Cholamandalam Financial and ITI

-0.65

Correlation Coefficient

Cholamandalam Financial  ITI

Excellent diversification

The 3 months correlation between Cholamandalam and ITI is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cholamandalam Financial Holdin and ITI Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITI Limited and Cholamandalam Financial 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 Cholamandalam Financial Holdings are associated (or correlated) with ITI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITI Limited has no effect on the direction of Cholamandalam Financial i.e., Cholamandalam Financial and ITI go up and down completely randomly.

Pair Corralation between Cholamandalam Financial and ITI

Assuming the 90 days trading horizon Cholamandalam Financial is expected to generate 1.81 times less return on investment than ITI. But when comparing it to its historical volatility, Cholamandalam Financial Holdings is 1.74 times less risky than ITI. It trades about 0.09 of its potential returns per unit of risk. ITI Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  25,185  in ITI Limited on October 14, 2024 and sell it today you would earn a total of  19,085  from holding ITI Limited or generate 75.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.46%
Values	Daily Returns

Cholamandalam Financial Holdin  vs.  ITI Limited

Cholamandalam Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

ITI Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITI Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, ITI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cholamandalam Financial and ITI

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

The idea behind Cholamandalam Financial Holdings and ITI 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.