Correlation Between ITI and Indian Railway

Can any of the company-specific risk be diversified away by investing in both ITI and Indian Railway 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 ITI and Indian Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ITI Limited and Indian Railway Finance, you can compare the effects of market volatilities on ITI and Indian Railway 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 ITI with a short position of Indian Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITI and Indian Railway.

Diversification Opportunities for ITI and Indian Railway

0.14

Correlation Coefficient

ITI  Indian Railway

Average diversification

The 3 months correlation between ITI and Indian is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding ITI Limited and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance and ITI 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 ITI Limited are associated (or correlated) with Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of ITI i.e., ITI and Indian Railway go up and down completely randomly.

Pair Corralation between ITI and Indian Railway

Assuming the 90 days trading horizon ITI Limited is expected to generate 2.46 times more return on investment than Indian Railway. However, ITI is 2.46 times more volatile than Indian Railway Finance. It trades about 0.18 of its potential returns per unit of risk. Indian Railway Finance is currently generating about -0.05 per unit of risk. If you would invest  24,685  in ITI Limited on October 14, 2024 and sell it today you would earn a total of  19,585  from holding ITI Limited or generate 79.34% return on investment over 90 days.

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

ITI Limited  vs.  Indian Railway Finance

ITI Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITI Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, ITI exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 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 ITI and Indian Railway

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

The idea behind ITI Limited and Indian Railway Finance 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.