Correlation Between Indian Railway and Life Insurance

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

Diversification Opportunities for Indian Railway and Life Insurance

0.61

Correlation Coefficient

Indian Railway  Life Insurance

Poor diversification

The 3 months correlation between Indian and Life is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Insurance 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 Life Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Insurance has no effect on the direction of Indian Railway i.e., Indian Railway and Life Insurance go up and down completely randomly.

Pair Corralation between Indian Railway and Life Insurance

Assuming the 90 days trading horizon Indian Railway Finance is expected to generate 1.77 times more return on investment than Life Insurance. However, Indian Railway is 1.77 times more volatile than Life Insurance. It trades about 0.02 of its potential returns per unit of risk. Life Insurance is currently generating about -0.09 per unit of risk. If you would invest  13,830  in Indian Railway Finance on October 24, 2024 and sell it today you would earn a total of  195.00  from holding Indian Railway Finance or generate 1.41% return on investment over 90 days.

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

Indian Railway Finance  vs.  Life Insurance

Indian Railway Finance

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Railway Finance are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Indian Railway is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Pair Trading with Indian Railway and Life Insurance

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

The idea behind Indian Railway Finance and Life Insurance 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.