Correlation Between Indian Railway and Power Finance
Can any of the company-specific risk be diversified away by investing in both Indian Railway and Power Finance 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 Power Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Indian Railway Finance and Power Finance, you can compare the effects of market volatilities on Indian Railway and Power Finance 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 Power Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Railway and Power Finance.
Diversification Opportunities for Indian Railway and Power Finance
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Indian and Power is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Indian Railway Finance and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance 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 Finance are associated (or correlated) with Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of Indian Railway i.e., Indian Railway and Power Finance go up and down completely randomly.
Pair Corralation between Indian Railway and Power Finance
Assuming the 90 days trading horizon Indian Railway Finance is expected to generate 0.93 times more return on investment than Power Finance. However, Indian Railway Finance is 1.07 times less risky than Power Finance. It trades about 0.08 of its potential returns per unit of risk. Power Finance is currently generating about -0.07 per unit of risk. If you would invest 14,542 in Indian Railway Finance on November 7, 2024 and sell it today you would earn a total of 552.00 from holding Indian Railway Finance or generate 3.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Indian Railway Finance vs. Power Finance
Performance |
| Timeline |
| Indian Railway Finance |
| Power Finance |
Indian Railway and Power Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Indian Railway and Power Finance
The main advantage of trading using opposite Indian Railway and Power Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian Railway position performs unexpectedly, Power Finance 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 Power Finance will offset losses from the drop in Power Finance's long position.| Indian Railway vs. Niraj Ispat Industries | Indian Railway vs. Syrma SGS Technology | Indian Railway vs. The Investment Trust | Indian Railway vs. Cholamandalam Investment and |
| Power Finance vs. One 97 Communications | Power Finance vs. MSP Steel Power | Power Finance vs. Zenith Steel Pipes | Power Finance vs. Tamilnadu Telecommunication Limited |
Check out your portfolio center.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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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