Correlation Between Indian Railway and Hindustan Foods

Can any of the company-specific risk be diversified away by investing in both Indian Railway and Hindustan Foods 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 Hindustan Foods 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 Hindustan Foods Limited, you can compare the effects of market volatilities on Indian Railway and Hindustan Foods 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 Hindustan Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Railway and Hindustan Foods.

Diversification Opportunities for Indian Railway and Hindustan Foods

-0.3

Correlation Coefficient

Indian Railway  Hindustan Foods

Very good diversification

The 3 months correlation between Indian and Hindustan is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and Hindustan Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Foods 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 Hindustan Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindustan Foods has no effect on the direction of Indian Railway i.e., Indian Railway and Hindustan Foods go up and down completely randomly.

Pair Corralation between Indian Railway and Hindustan Foods

Assuming the 90 days trading horizon Indian Railway Finance is expected to under-perform the Hindustan Foods. In addition to that, Indian Railway is 1.26 times more volatile than Hindustan Foods Limited. It trades about -0.05 of its total potential returns per unit of risk. Hindustan Foods Limited is currently generating about 0.06 per unit of volatility. If you would invest  51,890  in Hindustan Foods Limited on December 26, 2024 and sell it today you would earn a total of  3,515  from holding Hindustan Foods Limited or generate 6.77% return on investment over 90 days.

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

Indian Railway Finance  vs.  Hindustan Foods Limited

Indian Railway Finance

Risk-Adjusted Performance

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 latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Hindustan Foods

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hindustan Foods Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Hindustan Foods may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Indian Railway and Hindustan Foods

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

The idea behind Indian Railway Finance and Hindustan Foods 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .