Correlation Between GM Breweries and Gujarat Narmada

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

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

Diversification Opportunities for GM Breweries and Gujarat Narmada

0.65

Correlation Coefficient

GM Breweries  Gujarat Narmada

Poor diversification

The 3 months correlation between GMBREW and Gujarat is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and Gujarat Narmada Valley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Narmada Valley and GM Breweries 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 GM Breweries Limited are associated (or correlated) with Gujarat Narmada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Narmada Valley has no effect on the direction of GM Breweries i.e., GM Breweries and Gujarat Narmada go up and down completely randomly.

Pair Corralation between GM Breweries and Gujarat Narmada

Assuming the 90 days trading horizon GM Breweries Limited is expected to generate 1.4 times more return on investment than Gujarat Narmada. However, GM Breweries is 1.4 times more volatile than Gujarat Narmada Valley. It trades about 0.0 of its potential returns per unit of risk. Gujarat Narmada Valley is currently generating about -0.04 per unit of risk. If you would invest  85,560  in GM Breweries Limited on September 4, 2024 and sell it today you would lose (2,580) from holding GM Breweries Limited or give up 3.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

GM Breweries Limited  vs.  Gujarat Narmada Valley

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Gujarat Narmada Valley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gujarat Narmada Valley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gujarat Narmada is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM Breweries and Gujarat Narmada

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

The idea behind GM Breweries Limited and Gujarat Narmada Valley 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.