Correlation Between Coal India and Energy Development

Can any of the company-specific risk be diversified away by investing in both Coal India and Energy Development 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 Energy Development 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 Energy Development, you can compare the effects of market volatilities on Coal India and Energy Development 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 Energy Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coal India and Energy Development.

Diversification Opportunities for Coal India and Energy Development

-0.3

Correlation Coefficient

Coal India  Energy Development

Very good diversification

The 3 months correlation between Coal and Energy is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Coal India Limited and Energy Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Development 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 Energy Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Development has no effect on the direction of Coal India i.e., Coal India and Energy Development go up and down completely randomly.

Pair Corralation between Coal India and Energy Development

Assuming the 90 days trading horizon Coal India Limited is expected to generate 0.59 times more return on investment than Energy Development. However, Coal India Limited is 1.7 times less risky than Energy Development. It trades about 0.0 of its potential returns per unit of risk. Energy Development is currently generating about -0.16 per unit of risk. If you would invest  38,295  in Coal India Limited on October 24, 2024 and sell it today you would lose (140.00) from holding Coal India Limited or give up 0.37% of portfolio value over 90 days.

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

Coal India Limited  vs.  Energy Development

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 weak 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.

Energy Development

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Coal India and Energy Development

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

The idea behind Coal India Limited and Energy Development 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.