Correlation Between Bharti Airtel and Ortel Communications

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

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

Diversification Opportunities for Bharti Airtel and Ortel Communications

0.04

Correlation Coefficient

Bharti Airtel  Ortel Communications

Significant diversification

The 3 months correlation between Bharti and Ortel is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bharti Airtel Limited and Ortel Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ortel Communications and Bharti Airtel 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 Bharti Airtel Limited are associated (or correlated) with Ortel Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ortel Communications has no effect on the direction of Bharti Airtel i.e., Bharti Airtel and Ortel Communications go up and down completely randomly.

Pair Corralation between Bharti Airtel and Ortel Communications

Assuming the 90 days trading horizon Bharti Airtel Limited is expected to generate 0.52 times more return on investment than Ortel Communications. However, Bharti Airtel Limited is 1.92 times less risky than Ortel Communications. It trades about 0.06 of its potential returns per unit of risk. Ortel Communications Limited is currently generating about 0.0 per unit of risk. If you would invest  154,720  in Bharti Airtel Limited on September 5, 2024 and sell it today you would earn a total of  7,335  from holding Bharti Airtel Limited or generate 4.74% return on investment over 90 days.

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

Bharti Airtel Limited  vs.  Ortel Communications Limited

Bharti Airtel Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bharti Airtel Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bharti Airtel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ortel Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ortel Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Ortel Communications is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bharti Airtel and Ortel Communications

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

The idea behind Bharti Airtel Limited and Ortel Communications 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.