Correlation Between Indian Metals and Rail Vikas

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

By analyzing existing cross correlation between Indian Metals Ferro and Rail Vikas Nigam, you can compare the effects of market volatilities on Indian Metals and Rail Vikas 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 Indian Metals with a short position of Rail Vikas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Metals and Rail Vikas.

Diversification Opportunities for Indian Metals and Rail Vikas

-0.1

Correlation Coefficient

Indian Metals  Rail Vikas

Good diversification

The 3 months correlation between Indian and Rail is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Rail Vikas Nigam in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rail Vikas Nigam and Indian Metals 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 Indian Metals Ferro are associated (or correlated) with Rail Vikas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rail Vikas Nigam has no effect on the direction of Indian Metals i.e., Indian Metals and Rail Vikas go up and down completely randomly.

Pair Corralation between Indian Metals and Rail Vikas

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 0.6 times more return on investment than Rail Vikas. However, Indian Metals Ferro is 1.67 times less risky than Rail Vikas. It trades about 0.05 of its potential returns per unit of risk. Rail Vikas Nigam is currently generating about 0.01 per unit of risk. If you would invest  87,930  in Indian Metals Ferro on October 22, 2024 and sell it today you would earn a total of  1,760  from holding Indian Metals Ferro or generate 2.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Indian Metals Ferro  vs.  Rail Vikas Nigam

Indian Metals Ferro

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rail Vikas Nigam

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rail Vikas Nigam has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Rail Vikas 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 Indian Metals and Rail Vikas

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

The idea behind Indian Metals Ferro and Rail Vikas Nigam 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.