Correlation Between Eros International and Rainbow Childrens

Can any of the company-specific risk be diversified away by investing in both Eros International and Rainbow Childrens 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 Eros International and Rainbow Childrens into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eros International Media and Rainbow Childrens Medicare, you can compare the effects of market volatilities on Eros International and Rainbow Childrens 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 Eros International with a short position of Rainbow Childrens. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eros International and Rainbow Childrens.

Diversification Opportunities for Eros International and Rainbow Childrens

-0.61

Correlation Coefficient

Eros International  Rainbow Childrens

Excellent diversification

The 3 months correlation between Eros and Rainbow is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Eros International Media and Rainbow Childrens Medicare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rainbow Childrens and Eros International 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 Eros International Media are associated (or correlated) with Rainbow Childrens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rainbow Childrens has no effect on the direction of Eros International i.e., Eros International and Rainbow Childrens go up and down completely randomly.

Pair Corralation between Eros International and Rainbow Childrens

Assuming the 90 days trading horizon Eros International Media is expected to under-perform the Rainbow Childrens. In addition to that, Eros International is 1.11 times more volatile than Rainbow Childrens Medicare. It trades about -0.2 of its total potential returns per unit of risk. Rainbow Childrens Medicare is currently generating about 0.0 per unit of volatility. If you would invest  156,970  in Rainbow Childrens Medicare on October 7, 2024 and sell it today you would lose (1,190) from holding Rainbow Childrens Medicare or give up 0.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.56%
Values	Daily Returns

Eros International Media  vs.  Rainbow Childrens Medicare

Eros International Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eros International Media has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent 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.

Rainbow Childrens

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rainbow Childrens Medicare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, Rainbow Childrens showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eros International and Rainbow Childrens

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

The idea behind Eros International Media and Rainbow Childrens Medicare 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.