Correlation Between IDBI Bank and Gujarat Lease

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

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

Diversification Opportunities for IDBI Bank and Gujarat Lease

-0.06

Correlation Coefficient

IDBI Bank  Gujarat Lease

Good diversification

The 3 months correlation between IDBI and Gujarat is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding IDBI Bank Limited and Gujarat Lease Financing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Lease Financing and IDBI Bank 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 IDBI Bank Limited are associated (or correlated) with Gujarat Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Lease Financing has no effect on the direction of IDBI Bank i.e., IDBI Bank and Gujarat Lease go up and down completely randomly.

Pair Corralation between IDBI Bank and Gujarat Lease

Assuming the 90 days trading horizon IDBI Bank Limited is expected to under-perform the Gujarat Lease. But the stock apears to be less risky and, when comparing its historical volatility, IDBI Bank Limited is 1.05 times less risky than Gujarat Lease. The stock trades about -0.02 of its potential returns per unit of risk. The Gujarat Lease Financing is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  750.00  in Gujarat Lease Financing on September 12, 2024 and sell it today you would earn a total of  92.00  from holding Gujarat Lease Financing or generate 12.27% return on investment over 90 days.

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

IDBI Bank Limited  vs.  Gujarat Lease Financing

IDBI Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gujarat Lease Financing

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Gujarat Lease unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IDBI Bank and Gujarat Lease

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

The idea behind IDBI Bank Limited and Gujarat Lease Financing 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.