Correlation Between Power Finance and ILFS Investment

Can any of the company-specific risk be diversified away by investing in both Power Finance and ILFS Investment 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 Power Finance and ILFS Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Power Finance and ILFS Investment Managers, you can compare the effects of market volatilities on Power Finance and ILFS Investment 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 Power Finance with a short position of ILFS Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Finance and ILFS Investment.

Diversification Opportunities for Power Finance and ILFS Investment

0.38

Correlation Coefficient

Power Finance  ILFS Investment

Weak diversification

The 3 months correlation between Power and ILFS is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Power Finance and ILFS Investment Managers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ILFS Investment Managers and Power Finance 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 Power Finance are associated (or correlated) with ILFS Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ILFS Investment Managers has no effect on the direction of Power Finance i.e., Power Finance and ILFS Investment go up and down completely randomly.

Pair Corralation between Power Finance and ILFS Investment

Assuming the 90 days trading horizon Power Finance is expected to under-perform the ILFS Investment. But the stock apears to be less risky and, when comparing its historical volatility, Power Finance is 1.03 times less risky than ILFS Investment. The stock trades about -0.32 of its potential returns per unit of risk. The ILFS Investment Managers is currently generating about -0.26 of returns per unit of risk over similar time horizon. If you would invest  1,195  in ILFS Investment Managers on October 10, 2024 and sell it today you would lose (131.00) from holding ILFS Investment Managers or give up 10.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Power Finance  vs.  ILFS Investment Managers

Power Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Power Finance is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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 latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Power Finance and ILFS Investment

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

The idea behind Power Finance and ILFS Investment Managers 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 Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..