Correlation Between Bajaj Finance and Muthoot Finance

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

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

Diversification Opportunities for Bajaj Finance and Muthoot Finance

0.73

Correlation Coefficient

Bajaj Finance  Muthoot Finance

Poor diversification

The 3 months correlation between Bajaj and Muthoot is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Bajaj Finance Limited and Muthoot Finance Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Muthoot Finance and Bajaj Finance 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 Finance Limited are associated (or correlated) with Muthoot Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Muthoot Finance has no effect on the direction of Bajaj Finance i.e., Bajaj Finance and Muthoot Finance go up and down completely randomly.

Pair Corralation between Bajaj Finance and Muthoot Finance

Assuming the 90 days trading horizon Bajaj Finance Limited is expected to under-perform the Muthoot Finance. In addition to that, Bajaj Finance is 1.03 times more volatile than Muthoot Finance Limited. It trades about -0.11 of its total potential returns per unit of risk. Muthoot Finance Limited is currently generating about -0.02 per unit of volatility. If you would invest  196,500  in Muthoot Finance Limited on September 2, 2024 and sell it today you would lose (4,795) from holding Muthoot Finance Limited or give up 2.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Bajaj Finance Limited  vs.  Muthoot Finance Limited

Bajaj Finance Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bajaj Finance Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Muthoot Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Muthoot Finance Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Muthoot Finance is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bajaj Finance and Muthoot Finance

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

The idea behind Bajaj Finance Limited and Muthoot Finance 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.