Correlation Between SBI Life and Action Construction

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

By analyzing existing cross correlation between SBI Life Insurance and Action Construction Equipment, you can compare the effects of market volatilities on SBI Life and Action Construction 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 SBI Life with a short position of Action Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBI Life and Action Construction.

Diversification Opportunities for SBI Life and Action Construction

-0.05

Correlation Coefficient

SBI Life  Action Construction

Good diversification

The 3 months correlation between SBI and Action is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding SBI Life Insurance and Action Construction Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Action Construction and SBI Life 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 SBI Life Insurance are associated (or correlated) with Action Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Action Construction has no effect on the direction of SBI Life i.e., SBI Life and Action Construction go up and down completely randomly.

Pair Corralation between SBI Life and Action Construction

Assuming the 90 days trading horizon SBI Life is expected to generate 13.34 times less return on investment than Action Construction. But when comparing it to its historical volatility, SBI Life Insurance is 2.08 times less risky than Action Construction. It trades about 0.02 of its potential returns per unit of risk. Action Construction Equipment is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  31,684  in Action Construction Equipment on September 28, 2024 and sell it today you would earn a total of  113,211  from holding Action Construction Equipment or generate 357.31% return on investment over 90 days.

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

SBI Life Insurance  vs.  Action Construction Equipment

SBI Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Action Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Action Construction may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SBI Life and Action Construction

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

The idea behind SBI Life Insurance and Action Construction Equipment 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.