Correlation Between Coal India and Vesuvius India

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

Diversification Opportunities for Coal India and Vesuvius India

0.67

Correlation Coefficient

Coal India  Vesuvius India

Poor diversification

The 3 months correlation between Coal and Vesuvius is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Coal India Limited and Vesuvius India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vesuvius India 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 Vesuvius India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vesuvius India has no effect on the direction of Coal India i.e., Coal India and Vesuvius India go up and down completely randomly.

Pair Corralation between Coal India and Vesuvius India

Assuming the 90 days trading horizon Coal India Limited is expected to under-perform the Vesuvius India. But the stock apears to be less risky and, when comparing its historical volatility, Coal India Limited is 1.38 times less risky than Vesuvius India. The stock trades about -0.17 of its potential returns per unit of risk. The Vesuvius India Limited is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  506,680  in Vesuvius India Limited on October 6, 2024 and sell it today you would lose (46,135) from holding Vesuvius India Limited or give up 9.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Coal India Limited  vs.  Vesuvius India 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 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.

Vesuvius India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vesuvius India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Coal India and Vesuvius India

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

The idea behind Coal India Limited and Vesuvius 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.