Correlation Between Sapphire Foods and Coal India

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

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

Diversification Opportunities for Sapphire Foods and Coal India

-0.2

Correlation Coefficient

Sapphire Foods  Coal India

Good diversification

The 3 months correlation between Sapphire and Coal is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Sapphire Foods India and Coal India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coal India Limited and Sapphire Foods 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 Sapphire Foods India are associated (or correlated) with Coal India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coal India Limited has no effect on the direction of Sapphire Foods i.e., Sapphire Foods and Coal India go up and down completely randomly.

Pair Corralation between Sapphire Foods and Coal India

Assuming the 90 days trading horizon Sapphire Foods India is expected to generate 15.14 times more return on investment than Coal India. However, Sapphire Foods is 15.14 times more volatile than Coal India Limited. It trades about 0.06 of its potential returns per unit of risk. Coal India Limited is currently generating about 0.08 per unit of risk. If you would invest  24,817  in Sapphire Foods India on October 23, 2024 and sell it today you would earn a total of  6,608  from holding Sapphire Foods India or generate 26.63% return on investment over 90 days.

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

Sapphire Foods India  vs.  Coal India Limited

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Sapphire Foods is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Coal India Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coal India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Sapphire Foods and Coal India

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

The idea behind Sapphire Foods India and Coal India 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .