Correlation Between General Insurance and Indian Railway

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

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

Diversification Opportunities for General Insurance and Indian Railway

0.5

Correlation Coefficient

General Insurance  Indian Railway

Very weak diversification

The 3 months correlation between General and Indian is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding General Insurance 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 General Insurance 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 General Insurance 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 General Insurance i.e., General Insurance and Indian Railway go up and down completely randomly.

Pair Corralation between General Insurance and Indian Railway

Assuming the 90 days trading horizon General Insurance is expected to generate 1.53 times less return on investment than Indian Railway. But when comparing it to its historical volatility, General Insurance is 1.06 times less risky than Indian Railway. It trades about 0.08 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  3,202  in Indian Railway Finance on September 26, 2024 and sell it today you would earn a total of  11,584  from holding Indian Railway Finance or generate 361.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.59%
Values	Daily Returns

General Insurance  vs.  Indian Railway Finance

General Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, General Insurance displayed solid returns over the last few months and may actually be approaching a breakup point.

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 General Insurance and Indian Railway

The main advantage of trading using opposite General Insurance and Indian Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Insurance 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 General Insurance 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.