Correlation Between Nippon Life and Edelweiss Financial

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

By analyzing existing cross correlation between Nippon Life India and Edelweiss Financial Services, you can compare the effects of market volatilities on Nippon Life and Edelweiss 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 Nippon Life with a short position of Edelweiss Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Life and Edelweiss Financial.

Diversification Opportunities for Nippon Life and Edelweiss Financial

0.87

Correlation Coefficient

Nippon Life  Edelweiss Financial

Very poor diversification

The 3 months correlation between Nippon and Edelweiss is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Life India and Edelweiss Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edelweiss Financial and Nippon Life 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 Nippon Life India are associated (or correlated) with Edelweiss Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edelweiss Financial has no effect on the direction of Nippon Life i.e., Nippon Life and Edelweiss Financial go up and down completely randomly.

Pair Corralation between Nippon Life and Edelweiss Financial

Assuming the 90 days trading horizon Nippon Life India is expected to generate 0.94 times more return on investment than Edelweiss Financial. However, Nippon Life India is 1.06 times less risky than Edelweiss Financial. It trades about -0.09 of its potential returns per unit of risk. Edelweiss Financial Services is currently generating about -0.14 per unit of risk. If you would invest  71,695  in Nippon Life India on December 28, 2024 and sell it today you would lose (12,720) from holding Nippon Life India or give up 17.74% of portfolio value over 90 days.

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

Nippon Life India  vs.  Edelweiss Financial Services

Nippon Life India

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nippon Life India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Edelweiss Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Edelweiss Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Nippon Life and Edelweiss Financial

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

The idea behind Nippon Life India and Edelweiss Financial Services 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.