Correlation Between Coffee Day and Rajnandini Metal

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

By analyzing existing cross correlation between Coffee Day Enterprises and Rajnandini Metal Limited, you can compare the effects of market volatilities on Coffee Day and Rajnandini Metal 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 Coffee Day with a short position of Rajnandini Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee Day and Rajnandini Metal.

Diversification Opportunities for Coffee Day and Rajnandini Metal

0.6

Correlation Coefficient

Coffee Day  Rajnandini Metal

Poor diversification

The 3 months correlation between Coffee and Rajnandini is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Day Enterprises and Rajnandini Metal Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rajnandini Metal and Coffee Day 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 Coffee Day Enterprises are associated (or correlated) with Rajnandini Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rajnandini Metal has no effect on the direction of Coffee Day i.e., Coffee Day and Rajnandini Metal go up and down completely randomly.

Pair Corralation between Coffee Day and Rajnandini Metal

Assuming the 90 days trading horizon Coffee Day Enterprises is expected to generate 0.75 times more return on investment than Rajnandini Metal. However, Coffee Day Enterprises is 1.33 times less risky than Rajnandini Metal. It trades about -0.47 of its potential returns per unit of risk. Rajnandini Metal Limited is currently generating about -0.68 per unit of risk. If you would invest  2,595  in Coffee Day Enterprises on December 1, 2024 and sell it today you would lose (467.00) from holding Coffee Day Enterprises or give up 18.0% of portfolio value over 90 days.

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

Coffee Day Enterprises  vs.  Rajnandini Metal Limited

Coffee Day Enterprises

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coffee Day Enterprises 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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Rajnandini Metal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rajnandini Metal Limited 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 primary indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Coffee Day and Rajnandini Metal

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

The idea behind Coffee Day Enterprises and Rajnandini Metal 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.