Correlation Between Electrosteel Castings and Indian Railway

Can any of the company-specific risk be diversified away by investing in both Electrosteel Castings and Indian Railway 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 Electrosteel Castings and Indian Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Electrosteel Castings Limited and Indian Railway Finance, you can compare the effects of market volatilities on Electrosteel Castings and Indian Railway 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 Electrosteel Castings with a short position of Indian Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electrosteel Castings and Indian Railway.

Diversification Opportunities for Electrosteel Castings and Indian Railway

0.16

Correlation Coefficient

Electrosteel Castings  Indian Railway

Average diversification

The 3 months correlation between Electrosteel and Indian is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Electrosteel Castings Limited and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance and Electrosteel Castings 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 Electrosteel Castings Limited are associated (or correlated) with Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of Electrosteel Castings i.e., Electrosteel Castings and Indian Railway go up and down completely randomly.

Pair Corralation between Electrosteel Castings and Indian Railway

Assuming the 90 days trading horizon Electrosteel Castings is expected to generate 1.16 times less return on investment than Indian Railway. But when comparing it to its historical volatility, Electrosteel Castings Limited is 1.09 times less risky than Indian Railway. It trades about 0.1 of its potential returns per unit of risk. Indian Railway Finance is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,216  in Indian Railway Finance on October 11, 2024 and sell it today you would earn a total of  11,161  from holding Indian Railway Finance or generate 347.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.38%
Values	Daily Returns

Electrosteel Castings Limited  vs.  Indian Railway Finance

Electrosteel Castings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrosteel Castings 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 basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Indian Railway Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Railway Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Indian Railway is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Electrosteel Castings and Indian Railway

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

The idea behind Electrosteel Castings Limited and Indian Railway Finance 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..