Correlation Between IDFC First and Welspun Investments

Can any of the company-specific risk be diversified away by investing in both IDFC First and Welspun Investments 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 IDFC First and Welspun Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IDFC First Bank and Welspun Investments and, you can compare the effects of market volatilities on IDFC First and Welspun Investments 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 IDFC First with a short position of Welspun Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDFC First and Welspun Investments.

Diversification Opportunities for IDFC First and Welspun Investments

0.7

Correlation Coefficient

IDFC First  Welspun Investments

Poor diversification

The 3 months correlation between IDFC and Welspun is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding IDFC First Bank and Welspun Investments and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Welspun Investments and and IDFC First 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 IDFC First Bank are associated (or correlated) with Welspun Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Welspun Investments and has no effect on the direction of IDFC First i.e., IDFC First and Welspun Investments go up and down completely randomly.

Pair Corralation between IDFC First and Welspun Investments

Assuming the 90 days trading horizon IDFC First Bank is expected to generate 0.51 times more return on investment than Welspun Investments. However, IDFC First Bank is 1.97 times less risky than Welspun Investments. It trades about -0.06 of its potential returns per unit of risk. Welspun Investments and is currently generating about -0.1 per unit of risk. If you would invest  6,408  in IDFC First Bank on November 29, 2024 and sell it today you would lose (527.00) from holding IDFC First Bank or give up 8.22% of portfolio value over 90 days.

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

IDFC First Bank  vs.  Welspun Investments and

IDFC First Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days IDFC First Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Welspun Investments and

Risk-Adjusted Performance

Very Weak

Over the last 90 days Welspun Investments and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with IDFC First and Welspun Investments

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

The idea behind IDFC First Bank and Welspun Investments 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.