Correlation Between Indian Railway and MSP Steel

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

Diversification Opportunities for Indian Railway and MSP Steel

0.53

Correlation Coefficient

Indian Railway  MSP Steel

Very weak diversification

The 3 months correlation between Indian and MSP is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and MSP Steel Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSP Steel Power 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 MSP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSP Steel Power has no effect on the direction of Indian Railway i.e., Indian Railway and MSP Steel go up and down completely randomly.

Pair Corralation between Indian Railway and MSP Steel

Assuming the 90 days trading horizon Indian Railway is expected to generate 4.66 times less return on investment than MSP Steel. In addition to that, Indian Railway is 1.26 times more volatile than MSP Steel Power. It trades about 0.03 of its total potential returns per unit of risk. MSP Steel Power is currently generating about 0.18 per unit of volatility. If you would invest  4,253  in MSP Steel Power on September 24, 2024 and sell it today you would earn a total of  290.00  from holding MSP Steel Power or generate 6.82% return on investment over 90 days.

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

Indian Railway Finance  vs.  MSP Steel Power

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 comparatively stable basic indicators, Indian Railway is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

MSP Steel Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MSP Steel Power 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.

Pair Trading with Indian Railway and MSP Steel

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

The idea behind Indian Railway Finance and MSP Steel Power 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.