Correlation Between NRB Industrial and Indian Hotels

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

By analyzing existing cross correlation between NRB Industrial Bearings and The Indian Hotels, you can compare the effects of market volatilities on NRB Industrial and Indian Hotels 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 NRB Industrial with a short position of Indian Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRB Industrial and Indian Hotels.

Diversification Opportunities for NRB Industrial and Indian Hotels

-0.63

Correlation Coefficient

NRB Industrial  Indian Hotels

Excellent diversification

The 3 months correlation between NRB and Indian is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding NRB Industrial Bearings and The Indian Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Hotels and NRB Industrial 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 NRB Industrial Bearings are associated (or correlated) with Indian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Hotels has no effect on the direction of NRB Industrial i.e., NRB Industrial and Indian Hotels go up and down completely randomly.

Pair Corralation between NRB Industrial and Indian Hotels

Assuming the 90 days trading horizon NRB Industrial is expected to generate 12.55 times less return on investment than Indian Hotels. In addition to that, NRB Industrial is 1.09 times more volatile than The Indian Hotels. It trades about 0.01 of its total potential returns per unit of risk. The Indian Hotels is currently generating about 0.12 per unit of volatility. If you would invest  67,125  in The Indian Hotels on October 26, 2024 and sell it today you would earn a total of  10,775  from holding The Indian Hotels or generate 16.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

NRB Industrial Bearings  vs.  The Indian Hotels

NRB Industrial Bearings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NRB Industrial Bearings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NRB Industrial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Indian Hotels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Indian Hotels are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Indian Hotels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NRB Industrial and Indian Hotels

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

The idea behind NRB Industrial Bearings and The Indian Hotels 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.