Correlation Between Indo Borax and TPL Plastech

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

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

Diversification Opportunities for Indo Borax and TPL Plastech

0.83

Correlation Coefficient

Indo Borax  TPL Plastech

Very poor diversification

The 3 months correlation between Indo and TPL is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Indo Borax Chemicals and TPL Plastech Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Plastech Limited and Indo Borax 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 Indo Borax Chemicals are associated (or correlated) with TPL Plastech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Plastech Limited has no effect on the direction of Indo Borax i.e., Indo Borax and TPL Plastech go up and down completely randomly.

Pair Corralation between Indo Borax and TPL Plastech

Assuming the 90 days trading horizon Indo Borax is expected to generate 2.83 times less return on investment than TPL Plastech. But when comparing it to its historical volatility, Indo Borax Chemicals is 1.26 times less risky than TPL Plastech. It trades about 0.04 of its potential returns per unit of risk. TPL Plastech Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,066  in TPL Plastech Limited on September 9, 2024 and sell it today you would earn a total of  7,812  from holding TPL Plastech Limited or generate 254.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.59%
Values	Daily Returns

Indo Borax Chemicals  vs.  TPL Plastech Limited

Indo Borax Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Borax Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Indo Borax is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

TPL Plastech Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TPL Plastech Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, TPL Plastech 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 Indo Borax and TPL Plastech

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

The idea behind Indo Borax Chemicals and TPL Plastech 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.