Correlation Between Zomato and Coal India

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

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

Diversification Opportunities for Zomato and Coal India

-0.19

Correlation Coefficient

Zomato  Coal India

Good diversification

The 3 months correlation between Zomato and Coal is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Zomato 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 Zomato 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 Zomato 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 Zomato i.e., Zomato and Coal India go up and down completely randomly.

Pair Corralation between Zomato and Coal India

Assuming the 90 days trading horizon Zomato Limited is expected to generate 1.74 times more return on investment than Coal India. However, Zomato is 1.74 times more volatile than Coal India Limited. It trades about 0.18 of its potential returns per unit of risk. Coal India Limited is currently generating about -0.17 per unit of risk. If you would invest  27,136  in Zomato Limited on September 20, 2024 and sell it today you would earn a total of  2,054  from holding Zomato Limited or generate 7.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Zomato Limited  vs.  Coal India Limited

Zomato Limited

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zomato Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zomato is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 conflicting 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 Zomato and Coal India

The main advantage of trading using opposite Zomato and Coal India positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zomato 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 Zomato 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.