Correlation Between Coal India and Banco Products

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

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

Diversification Opportunities for Coal India and Banco Products

-0.23

Correlation Coefficient

Coal India  Banco Products

Very good diversification

The 3 months correlation between Coal and Banco is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Coal India Limited and Banco Products Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Products and Coal India 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 Coal India Limited are associated (or correlated) with Banco Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Products has no effect on the direction of Coal India i.e., Coal India and Banco Products go up and down completely randomly.

Pair Corralation between Coal India and Banco Products

Assuming the 90 days trading horizon Coal India Limited is expected to under-perform the Banco Products. But the stock apears to be less risky and, when comparing its historical volatility, Coal India Limited is 131.63 times less risky than Banco Products. The stock trades about -0.2 of its potential returns per unit of risk. The Banco Products Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  36,745  in Banco Products Limited on October 6, 2024 and sell it today you would earn a total of  11,545  from holding Banco Products Limited or generate 31.42% return on investment over 90 days.

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

Coal India Limited  vs.  Banco Products Limited

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 unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Banco Products

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Products Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, Banco Products displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coal India and Banco Products

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

The idea behind Coal India Limited and Banco Products 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.