Correlation Between Indian Railway and Indian Hotels

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

Diversification Opportunities for Indian Railway and Indian Hotels

-0.42

Correlation Coefficient

Indian Railway  Indian Hotels

Very good diversification

The 3 months correlation between Indian and Indian is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and The Indian Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Hotels 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 Indian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Hotels has no effect on the direction of Indian Railway i.e., Indian Railway and Indian Hotels go up and down completely randomly.

Pair Corralation between Indian Railway and Indian Hotels

Assuming the 90 days trading horizon Indian Railway Finance is expected to under-perform the Indian Hotels. In addition to that, Indian Railway is 1.14 times more volatile than The Indian Hotels. It trades about -0.1 of its total potential returns per unit of risk. The Indian Hotels is currently generating about 0.16 per unit of volatility. If you would invest  65,590  in The Indian Hotels on September 2, 2024 and sell it today you would earn a total of  13,745  from holding The Indian Hotels or generate 20.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Indian Railway Finance  vs.  The Indian Hotels

Indian Railway Finance

Risk-Adjusted Performance

0 of 100

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Indian Hotels

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Indian Hotels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Indian Hotels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Railway and Indian Hotels

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

The idea behind Indian Railway Finance and The Indian Hotels 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.