Correlation Between Indian Railway and HDFC Asset

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Can any of the company-specific risk be diversified away by investing in both Indian Railway and HDFC Asset 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 Indian Railway and HDFC Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Indian Railway Catering and HDFC Asset Management, you can compare the effects of market volatilities on Indian Railway and HDFC Asset 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 Indian Railway with a short position of HDFC Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Railway and HDFC Asset.

Diversification Opportunities for Indian Railway and HDFC Asset

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Indian and HDFC is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Catering and HDFC Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Asset Management and Indian Railway 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 Indian Railway Catering are associated (or correlated) with HDFC Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Asset Management has no effect on the direction of Indian Railway i.e., Indian Railway and HDFC Asset go up and down completely randomly.

Pair Corralation between Indian Railway and HDFC Asset

Assuming the 90 days trading horizon Indian Railway Catering is expected to generate 1.01 times more return on investment than HDFC Asset. However, Indian Railway is 1.01 times more volatile than HDFC Asset Management. It trades about -0.41 of its potential returns per unit of risk. HDFC Asset Management is currently generating about -0.51 per unit of risk. If you would invest  85,545  in Indian Railway Catering on October 12, 2024 and sell it today you would lose (9,165) from holding Indian Railway Catering or give up 10.71% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Indian Railway Catering  vs.  HDFC Asset Management

 Performance 
       Timeline  
Indian Railway Catering 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Indian Railway Catering 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 fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
HDFC Asset Management 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days HDFC Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Indian Railway and HDFC Asset Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Indian Railway and HDFC Asset

The main advantage of trading using opposite Indian Railway and HDFC Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian Railway position performs unexpectedly, HDFC Asset 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 HDFC Asset will offset losses from the drop in HDFC Asset's long position.
The idea behind Indian Railway Catering and HDFC Asset Management 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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