Correlation Between Nippon Life and Parag Milk

Can any of the company-specific risk be diversified away by investing in both Nippon Life and Parag Milk 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 Parag Milk 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 Parag Milk Foods, you can compare the effects of market volatilities on Nippon Life and Parag Milk 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 Parag Milk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nippon Life and Parag Milk.

Diversification Opportunities for Nippon Life and Parag Milk

-0.17

Correlation Coefficient

Nippon Life  Parag Milk

Good diversification

The 3 months correlation between Nippon and Parag is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Life India and Parag Milk Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parag Milk Foods 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 Parag Milk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parag Milk Foods has no effect on the direction of Nippon Life i.e., Nippon Life and Parag Milk go up and down completely randomly.

Pair Corralation between Nippon Life and Parag Milk

Assuming the 90 days trading horizon Nippon Life India is expected to generate 0.96 times more return on investment than Parag Milk. However, Nippon Life India is 1.04 times less risky than Parag Milk. It trades about 0.14 of its potential returns per unit of risk. Parag Milk Foods is currently generating about -0.01 per unit of risk. If you would invest  62,402  in Nippon Life India on October 7, 2024 and sell it today you would earn a total of  13,423  from holding Nippon Life India or generate 21.51% return on investment over 90 days.

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

Nippon Life India  vs.  Parag Milk Foods

Nippon Life India

Risk-Adjusted Performance

10 of 100

OK

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

Parag Milk Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Parag Milk Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Parag Milk is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nippon Life and Parag Milk

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

The idea behind Nippon Life India and Parag Milk Foods 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.