Correlation Between ILFS Investment and Indian Railway

Can any of the company-specific risk be diversified away by investing in both ILFS Investment 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 ILFS Investment and Indian Railway 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 Indian Railway Finance, you can compare the effects of market volatilities on ILFS Investment 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 ILFS Investment with a short position of Indian Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of ILFS Investment and Indian Railway.

Diversification Opportunities for ILFS Investment and Indian Railway

0.76

Correlation Coefficient

ILFS Investment  Indian Railway

Poor diversification

The 3 months correlation between ILFS and Indian is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding ILFS Investment Managers 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 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 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 ILFS Investment i.e., ILFS Investment and Indian Railway go up and down completely randomly.

Pair Corralation between ILFS Investment and Indian Railway

Assuming the 90 days trading horizon ILFS Investment Managers is expected to under-perform the Indian Railway. But the stock apears to be less risky and, when comparing its historical volatility, ILFS Investment Managers is 1.05 times less risky than Indian Railway. The stock trades about -0.05 of its potential returns per unit of risk. The Indian Railway Finance is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  15,105  in Indian Railway Finance on October 5, 2024 and sell it today you would earn a total of  99.00  from holding Indian Railway Finance or generate 0.66% return on investment over 90 days.

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

ILFS Investment Managers  vs.  Indian Railway Finance

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Indian Railway Finance

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Railway Finance are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indian Railway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ILFS Investment and Indian Railway

The main advantage of trading using opposite ILFS Investment and Indian Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ILFS Investment 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 ILFS Investment Managers 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.