Correlation Between Indian Railway and Piramal Enterprises

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

Diversification Opportunities for Indian Railway and Piramal Enterprises

0.45

Correlation Coefficient

Indian Railway  Piramal Enterprises

Very weak diversification

The 3 months correlation between Indian and Piramal is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and Piramal Enterprises Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piramal Enterprises 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 Piramal Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piramal Enterprises has no effect on the direction of Indian Railway i.e., Indian Railway and Piramal Enterprises go up and down completely randomly.

Pair Corralation between Indian Railway and Piramal Enterprises

Assuming the 90 days trading horizon Indian Railway is expected to generate 1.28 times less return on investment than Piramal Enterprises. In addition to that, Indian Railway is 1.11 times more volatile than Piramal Enterprises Limited. It trades about 0.25 of its total potential returns per unit of risk. Piramal Enterprises Limited is currently generating about 0.36 per unit of volatility. If you would invest  104,855  in Piramal Enterprises Limited on September 19, 2024 and sell it today you would earn a total of  17,640  from holding Piramal Enterprises Limited or generate 16.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Indian Railway Finance  vs.  Piramal Enterprises Limited

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

Piramal Enterprises

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Piramal Enterprises Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, Piramal Enterprises exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indian Railway and Piramal Enterprises

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

The idea behind Indian Railway Finance and Piramal Enterprises 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.