Correlation Between Industrial Investment and Coal India

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

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

Diversification Opportunities for Industrial Investment and Coal India

-0.44

Correlation Coefficient

Industrial Investment  Coal India

Very good diversification

The 3 months correlation between Industrial and Coal is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Investment Trust and Coal India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coal India Limited and Industrial Investment 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 Industrial Investment Trust are associated (or correlated) with Coal India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coal India Limited has no effect on the direction of Industrial Investment i.e., Industrial Investment and Coal India go up and down completely randomly.

Pair Corralation between Industrial Investment and Coal India

Assuming the 90 days trading horizon Industrial Investment Trust is expected to under-perform the Coal India. In addition to that, Industrial Investment is 1.88 times more volatile than Coal India Limited. It trades about -0.48 of its total potential returns per unit of risk. Coal India Limited is currently generating about -0.28 per unit of volatility. If you would invest  41,400  in Coal India Limited on October 10, 2024 and sell it today you would lose (3,420) from holding Coal India Limited or give up 8.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Industrial Investment Trust  vs.  Coal India Limited

Industrial Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Investment Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Industrial Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Coal India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coal India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting 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.

Pair Trading with Industrial Investment and Coal India

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

The idea behind Industrial Investment Trust and Coal India Limited 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.