Correlation Between Taj GVK and Indian Railway

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

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

Diversification Opportunities for Taj GVK and Indian Railway

0.3

Correlation Coefficient

Taj GVK  Indian Railway

Weak diversification

The 3 months correlation between Taj and Indian is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Taj GVK Hotels 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 Taj GVK 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 Taj GVK Hotels 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 Taj GVK i.e., Taj GVK and Indian Railway go up and down completely randomly.

Pair Corralation between Taj GVK and Indian Railway

Assuming the 90 days trading horizon Taj GVK is expected to generate 1.2 times less return on investment than Indian Railway. But when comparing it to its historical volatility, Taj GVK Hotels is 1.19 times less risky than Indian Railway. It trades about 0.08 of its potential returns per unit of risk. Indian Railway Finance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,343  in Indian Railway Finance on September 13, 2024 and sell it today you would earn a total of  7,148  from holding Indian Railway Finance or generate 76.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.18%
Values	Daily Returns

Taj GVK Hotels  vs.  Indian Railway Finance

Taj GVK Hotels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taj GVK Hotels are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Taj GVK sustained solid returns over the last few months and may actually be approaching a breakup point.

Indian Railway Finance

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, Indian Railway is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Taj GVK and Indian Railway

The main advantage of trading using opposite Taj GVK and Indian Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taj GVK 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 Taj GVK Hotels 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.