Correlation Between NIFTY SUMER and Rail Vikas

Can any of the company-specific risk be diversified away by investing in both NIFTY SUMER and Rail Vikas 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 NIFTY SUMER and Rail Vikas into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NIFTY SUMER DURABLES and Rail Vikas Nigam, you can compare the effects of market volatilities on NIFTY SUMER and Rail Vikas 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 NIFTY SUMER with a short position of Rail Vikas. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIFTY SUMER and Rail Vikas.

Diversification Opportunities for NIFTY SUMER and Rail Vikas

0.45

Correlation Coefficient

NIFTY SUMER  Rail Vikas

Very weak diversification

The 3 months correlation between NIFTY and Rail is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and Rail Vikas Nigam in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rail Vikas Nigam and NIFTY SUMER 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 NIFTY SUMER DURABLES are associated (or correlated) with Rail Vikas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rail Vikas Nigam has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Rail Vikas go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Rail Vikas

Assuming the 90 days trading horizon NIFTY SUMER DURABLES is expected to generate 0.43 times more return on investment than Rail Vikas. However, NIFTY SUMER DURABLES is 2.35 times less risky than Rail Vikas. It trades about -0.02 of its potential returns per unit of risk. Rail Vikas Nigam is currently generating about -0.07 per unit of risk. If you would invest  4,253,465  in NIFTY SUMER DURABLES on October 11, 2024 and sell it today you would lose (78,890) from holding NIFTY SUMER DURABLES or give up 1.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

NIFTY SUMER DURABLES  vs.  Rail Vikas Nigam

Pair Trading with NIFTY SUMER and Rail Vikas

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

The idea behind NIFTY SUMER DURABLES and Rail Vikas Nigam 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.