Correlation Between Foods Inns and Cholamandalam Investment

Can any of the company-specific risk be diversified away by investing in both Foods Inns and Cholamandalam Investment 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 Foods Inns and Cholamandalam Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Foods Inns Limited and Cholamandalam Investment and, you can compare the effects of market volatilities on Foods Inns and Cholamandalam Investment 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 Foods Inns with a short position of Cholamandalam Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foods Inns and Cholamandalam Investment.

Diversification Opportunities for Foods Inns and Cholamandalam Investment

0.66

Correlation Coefficient

Foods Inns  Cholamandalam Investment

Poor diversification

The 3 months correlation between Foods and Cholamandalam is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Foods Inns Limited and Cholamandalam Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cholamandalam Investment and Foods Inns 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 Foods Inns Limited are associated (or correlated) with Cholamandalam Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cholamandalam Investment has no effect on the direction of Foods Inns i.e., Foods Inns and Cholamandalam Investment go up and down completely randomly.

Pair Corralation between Foods Inns and Cholamandalam Investment

Assuming the 90 days trading horizon Foods Inns Limited is expected to under-perform the Cholamandalam Investment. But the stock apears to be less risky and, when comparing its historical volatility, Foods Inns Limited is 1.3 times less risky than Cholamandalam Investment. The stock trades about -0.32 of its potential returns per unit of risk. The Cholamandalam Investment and is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  134,700  in Cholamandalam Investment and on October 12, 2024 and sell it today you would lose (5,880) from holding Cholamandalam Investment and or give up 4.37% of portfolio value over 90 days.

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

Foods Inns Limited  vs.  Cholamandalam Investment and

Foods Inns Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foods Inns Limited 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 basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Cholamandalam Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Foods Inns and Cholamandalam Investment

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

The idea behind Foods Inns Limited and Cholamandalam Investment and 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.