Correlation Between Indian Railway and Paramount Communications

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

Diversification Opportunities for Indian Railway and Paramount Communications

0.72

Correlation Coefficient

Indian Railway  Paramount Communications

Poor diversification

The 3 months correlation between Indian and Paramount is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and Paramount Communications Limit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Communications 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 Paramount Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Communications has no effect on the direction of Indian Railway i.e., Indian Railway and Paramount Communications go up and down completely randomly.

Pair Corralation between Indian Railway and Paramount Communications

Assuming the 90 days trading horizon Indian Railway is expected to generate 5.17 times less return on investment than Paramount Communications. But when comparing it to its historical volatility, Indian Railway Finance is 1.3 times less risky than Paramount Communications. It trades about 0.1 of its potential returns per unit of risk. Paramount Communications Limited is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  6,681  in Paramount Communications Limited on September 23, 2024 and sell it today you would earn a total of  1,810  from holding Paramount Communications Limited or generate 27.09% 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.  Paramount Communications Limit

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Paramount Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Paramount Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Indian Railway and Paramount Communications

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

The idea behind Indian Railway Finance and Paramount Communications 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.