Correlation Between Welspun Corp and Coal India

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

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

Diversification Opportunities for Welspun Corp and Coal India

-0.49

Correlation Coefficient

Welspun Corp  Coal India

Very good diversification

The 3 months correlation between Welspun and Coal is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Welspun Corp Limited 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 Welspun Corp 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 Welspun Corp Limited 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 Welspun Corp i.e., Welspun Corp and Coal India go up and down completely randomly.

Pair Corralation between Welspun Corp and Coal India

Assuming the 90 days trading horizon Welspun Corp Limited is expected to generate 1.5 times more return on investment than Coal India. However, Welspun Corp is 1.5 times more volatile than Coal India Limited. It trades about 0.07 of its potential returns per unit of risk. Coal India Limited is currently generating about -0.26 per unit of risk. If you would invest  71,965  in Welspun Corp Limited on September 24, 2024 and sell it today you would earn a total of  5,670  from holding Welspun Corp Limited or generate 7.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Welspun Corp Limited  vs.  Coal India Limited

Welspun Corp Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Welspun Corp Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Welspun Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 uncertain performance in the last few months, the Stock's fundamental 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.

Pair Trading with Welspun Corp and Coal India

The main advantage of trading using opposite Welspun Corp and Coal India positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Welspun Corp 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 Welspun Corp Limited 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.