Correlation Between Spencers Retail and Indian Railway

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

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

Diversification Opportunities for Spencers Retail and Indian Railway

0.8

Correlation Coefficient

Spencers Retail  Indian Railway

Very poor diversification

The 3 months correlation between Spencers and Indian is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Spencers Retail Limited and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance and Spencers Retail 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 Spencers Retail Limited are associated (or correlated) with Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of Spencers Retail i.e., Spencers Retail and Indian Railway go up and down completely randomly.

Pair Corralation between Spencers Retail and Indian Railway

Assuming the 90 days trading horizon Spencers Retail Limited is expected to under-perform the Indian Railway. In addition to that, Spencers Retail is 1.26 times more volatile than Indian Railway Finance. It trades about -0.07 of its total potential returns per unit of risk. Indian Railway Finance is currently generating about -0.03 per unit of volatility. If you would invest  14,583  in Indian Railway Finance on December 25, 2024 and sell it today you would lose (1,303) from holding Indian Railway Finance or give up 8.94% of portfolio value over 90 days.

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

Spencers Retail Limited  vs.  Indian Railway Finance

Spencers Retail

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spencers Retail Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Indian Railway Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indian Railway Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Spencers Retail and Indian Railway

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

The idea behind Spencers Retail Limited and Indian Railway Finance 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.