Correlation Between Asian Hotels and Tarapur Transformers

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

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

Diversification Opportunities for Asian Hotels and Tarapur Transformers

0.23

Correlation Coefficient

Asian Hotels  Tarapur Transformers

Modest diversification

The 3 months correlation between Asian and Tarapur is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Asian Hotels Limited and Tarapur Transformers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tarapur Transformers and Asian Hotels 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 Asian Hotels Limited are associated (or correlated) with Tarapur Transformers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tarapur Transformers has no effect on the direction of Asian Hotels i.e., Asian Hotels and Tarapur Transformers go up and down completely randomly.

Pair Corralation between Asian Hotels and Tarapur Transformers

Assuming the 90 days trading horizon Asian Hotels is expected to generate 2.13 times less return on investment than Tarapur Transformers. But when comparing it to its historical volatility, Asian Hotels Limited is 1.04 times less risky than Tarapur Transformers. It trades about 0.08 of its potential returns per unit of risk. Tarapur Transformers Limited is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  445.00  in Tarapur Transformers Limited on September 24, 2024 and sell it today you would earn a total of  4,104  from holding Tarapur Transformers Limited or generate 922.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.59%
Values	Daily Returns

Asian Hotels Limited  vs.  Tarapur Transformers Limited

Asian Hotels Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Asian Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

Tarapur Transformers

Risk-Adjusted Performance

35 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asian Hotels and Tarapur Transformers

The main advantage of trading using opposite Asian Hotels and Tarapur Transformers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asian Hotels position performs unexpectedly, Tarapur Transformers 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 Tarapur Transformers will offset losses from the drop in Tarapur Transformers' long position.

The idea behind Asian Hotels Limited and Tarapur Transformers 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.