Correlation Between Coal India and Nucleus Software

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

Diversification Opportunities for Coal India and Nucleus Software

0.9

Correlation Coefficient

Coal India  Nucleus Software

Almost no diversification

The 3 months correlation between Coal and Nucleus is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Coal India Limited and Nucleus Software Exports in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucleus Software Exports 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 Nucleus Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucleus Software Exports has no effect on the direction of Coal India i.e., Coal India and Nucleus Software go up and down completely randomly.

Pair Corralation between Coal India and Nucleus Software

Assuming the 90 days trading horizon Coal India Limited is expected to generate 0.82 times more return on investment than Nucleus Software. However, Coal India Limited is 1.21 times less risky than Nucleus Software. It trades about -0.4 of its potential returns per unit of risk. Nucleus Software Exports is currently generating about -0.34 per unit of risk. If you would invest  41,715  in Coal India Limited on September 28, 2024 and sell it today you would lose (3,665) from holding Coal India Limited or give up 8.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	91.3%
Values	Daily Returns

Coal India Limited  vs.  Nucleus Software Exports

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 uncertain 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.

Nucleus Software Exports

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucleus Software Exports 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 technical and fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Coal India and Nucleus Software

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

The idea behind Coal India Limited and Nucleus Software Exports 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.