Correlation Between Bajaj Holdings and United Drilling

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

By analyzing existing cross correlation between Bajaj Holdings Investment and United Drilling Tools, you can compare the effects of market volatilities on Bajaj Holdings and United Drilling 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 Bajaj Holdings with a short position of United Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bajaj Holdings and United Drilling.

Diversification Opportunities for Bajaj Holdings and United Drilling

0.09

Correlation Coefficient

Bajaj Holdings  United Drilling

Significant diversification

The 3 months correlation between Bajaj and United is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Bajaj Holdings Investment and United Drilling Tools in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Drilling Tools and Bajaj Holdings 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 Bajaj Holdings Investment are associated (or correlated) with United Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Drilling Tools has no effect on the direction of Bajaj Holdings i.e., Bajaj Holdings and United Drilling go up and down completely randomly.

Pair Corralation between Bajaj Holdings and United Drilling

Assuming the 90 days trading horizon Bajaj Holdings Investment is expected to generate 0.71 times more return on investment than United Drilling. However, Bajaj Holdings Investment is 1.42 times less risky than United Drilling. It trades about 0.0 of its potential returns per unit of risk. United Drilling Tools is currently generating about -0.05 per unit of risk. If you would invest  1,079,239  in Bajaj Holdings Investment on September 5, 2024 and sell it today you would lose (10,939) from holding Bajaj Holdings Investment or give up 1.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Bajaj Holdings Investment  vs.  United Drilling Tools

Bajaj Holdings Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bajaj Holdings Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Bajaj Holdings is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

United Drilling Tools

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Drilling Tools has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Bajaj Holdings and United Drilling

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

The idea behind Bajaj Holdings Investment and United Drilling Tools 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.