Correlation Between GACM Technologies and Tarapur Transformers

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

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

Diversification Opportunities for GACM Technologies and Tarapur Transformers

-0.37

Correlation Coefficient

GACM Technologies  Tarapur Transformers

Very good diversification

The 3 months correlation between GACM and Tarapur is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding GACM Technologies 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 GACM Technologies 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 GACM Technologies 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 GACM Technologies i.e., GACM Technologies and Tarapur Transformers go up and down completely randomly.

Pair Corralation between GACM Technologies and Tarapur Transformers

Assuming the 90 days trading horizon GACM Technologies is expected to generate 2.92 times less return on investment than Tarapur Transformers. But when comparing it to its historical volatility, GACM Technologies Limited is 1.38 times less risky than Tarapur Transformers. It trades about 0.37 of its potential returns per unit of risk. Tarapur Transformers Limited is currently generating about 0.79 of returns per unit of risk over similar time horizon. If you would invest  2,999  in Tarapur Transformers Limited on September 24, 2024 and sell it today you would earn a total of  1,550  from holding Tarapur Transformers Limited or generate 51.68% return on investment over 90 days.

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

GACM Technologies Limited  vs.  Tarapur Transformers Limited

GACM Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GACM Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 GACM Technologies and Tarapur Transformers

The main advantage of trading using opposite GACM Technologies and Tarapur Transformers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GACM Technologies 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 GACM Technologies 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.

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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.