Correlation Between Rail Vikas and Praj Industries

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

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

Diversification Opportunities for Rail Vikas and Praj Industries

0.19

Correlation Coefficient

Rail Vikas  Praj Industries

Average diversification

The 3 months correlation between Rail and Praj is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Rail Vikas Nigam and Praj Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Praj Industries and Rail Vikas 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 Rail Vikas Nigam are associated (or correlated) with Praj Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Praj Industries has no effect on the direction of Rail Vikas i.e., Rail Vikas and Praj Industries go up and down completely randomly.

Pair Corralation between Rail Vikas and Praj Industries

Assuming the 90 days trading horizon Rail Vikas Nigam is expected to generate 1.52 times more return on investment than Praj Industries. However, Rail Vikas is 1.52 times more volatile than Praj Industries Limited. It trades about 0.12 of its potential returns per unit of risk. Praj Industries Limited is currently generating about 0.09 per unit of risk. If you would invest  7,454  in Rail Vikas Nigam on October 5, 2024 and sell it today you would earn a total of  35,501  from holding Rail Vikas Nigam or generate 476.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Rail Vikas Nigam  vs.  Praj Industries Limited

Rail Vikas Nigam

Risk-Adjusted Performance

0 of 100

Very Weak

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

Praj Industries

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Praj Industries Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, Praj Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rail Vikas and Praj Industries

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

The idea behind Rail Vikas Nigam and Praj Industries 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.