Correlation Between ILFS Investment and Cholamandalam Financial

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

By analyzing existing cross correlation between ILFS Investment Managers and Cholamandalam Financial Holdings, you can compare the effects of market volatilities on ILFS Investment and Cholamandalam Financial 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 ILFS Investment with a short position of Cholamandalam Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of ILFS Investment and Cholamandalam Financial.

Diversification Opportunities for ILFS Investment and Cholamandalam Financial

0.2

Correlation Coefficient

ILFS Investment  Cholamandalam Financial

Modest diversification

The 3 months correlation between ILFS and Cholamandalam is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ILFS Investment Managers and Cholamandalam Financial Holdin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cholamandalam Financial and ILFS Investment 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 ILFS Investment Managers are associated (or correlated) with Cholamandalam Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cholamandalam Financial has no effect on the direction of ILFS Investment i.e., ILFS Investment and Cholamandalam Financial go up and down completely randomly.

Pair Corralation between ILFS Investment and Cholamandalam Financial

Assuming the 90 days trading horizon ILFS Investment Managers is expected to generate 1.18 times more return on investment than Cholamandalam Financial. However, ILFS Investment is 1.18 times more volatile than Cholamandalam Financial Holdings. It trades about -0.02 of its potential returns per unit of risk. Cholamandalam Financial Holdings is currently generating about -0.27 per unit of risk. If you would invest  1,163  in ILFS Investment Managers on September 30, 2024 and sell it today you would lose (57.00) from holding ILFS Investment Managers or give up 4.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

ILFS Investment Managers  vs.  Cholamandalam Financial Holdin

ILFS Investment Managers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ILFS Investment Managers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, ILFS Investment is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Cholamandalam Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with ILFS Investment and Cholamandalam Financial

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

The idea behind ILFS Investment Managers and Cholamandalam Financial Holdings 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 Global Correlations module to find global opportunities by holding instruments from different markets.