Correlation Between Praxis Home and RITES

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

By analyzing existing cross correlation between Praxis Home Retail and RITES Limited, you can compare the effects of market volatilities on Praxis Home and RITES 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 Praxis Home with a short position of RITES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Praxis Home and RITES.

Diversification Opportunities for Praxis Home and RITES

0.87

Correlation Coefficient

Praxis Home  RITES

Very poor diversification

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

Pair Corralation between Praxis Home and RITES

Assuming the 90 days trading horizon Praxis Home Retail is expected to under-perform the RITES. But the stock apears to be less risky and, when comparing its historical volatility, Praxis Home Retail is 1.1 times less risky than RITES. The stock trades about -0.29 of its potential returns per unit of risk. The RITES Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  27,809  in RITES Limited on December 24, 2024 and sell it today you would lose (2,247) from holding RITES Limited or give up 8.08% of portfolio value over 90 days.

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

Praxis Home Retail  vs.  RITES Limited

Praxis Home Retail

Risk-Adjusted Performance

Very Weak

Over the last 90 days Praxis Home Retail has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

RITES Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days RITES Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, RITES is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Praxis Home and RITES

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

The idea behind Praxis Home Retail and RITES Limited 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.