Correlation Between Indian Railway and AVALON TECHNOLOGIES

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

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

Diversification Opportunities for Indian Railway and AVALON TECHNOLOGIES

0.19

Correlation Coefficient

Indian Railway  AVALON TECHNOLOGIES

Average diversification

The 3 months correlation between Indian and AVALON is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and AVALON TECHNOLOGIES LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVALON TECHNOLOGIES LTD and Indian Railway 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 Railway Finance are associated (or correlated) with AVALON TECHNOLOGIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVALON TECHNOLOGIES LTD has no effect on the direction of Indian Railway i.e., Indian Railway and AVALON TECHNOLOGIES go up and down completely randomly.

Pair Corralation between Indian Railway and AVALON TECHNOLOGIES

Assuming the 90 days trading horizon Indian Railway Finance is expected to generate 1.16 times more return on investment than AVALON TECHNOLOGIES. However, Indian Railway is 1.16 times more volatile than AVALON TECHNOLOGIES LTD. It trades about 0.12 of its potential returns per unit of risk. AVALON TECHNOLOGIES LTD is currently generating about 0.09 per unit of risk. If you would invest  2,823  in Indian Railway Finance on October 6, 2024 and sell it today you would earn a total of  12,547  from holding Indian Railway Finance or generate 444.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.81%
Values	Daily Returns

Indian Railway Finance  vs.  AVALON TECHNOLOGIES LTD

Indian Railway Finance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Railway Finance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indian Railway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

AVALON TECHNOLOGIES LTD

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AVALON TECHNOLOGIES LTD are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, AVALON TECHNOLOGIES sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Railway and AVALON TECHNOLOGIES

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

The idea behind Indian Railway Finance and AVALON TECHNOLOGIES LTD 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.