Correlation Between Bank of Maharashtra and Golden Tobacco

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

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

Diversification Opportunities for Bank of Maharashtra and Golden Tobacco

0.8

Correlation Coefficient

Bank of Maharashtra  Golden Tobacco

Very poor diversification

The 3 months correlation between Bank and Golden is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Maharashtra and Golden Tobacco Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Tobacco and Bank of Maharashtra 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 Bank of Maharashtra are associated (or correlated) with Golden Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Tobacco has no effect on the direction of Bank of Maharashtra i.e., Bank of Maharashtra and Golden Tobacco go up and down completely randomly.

Pair Corralation between Bank of Maharashtra and Golden Tobacco

Assuming the 90 days trading horizon Bank of Maharashtra is expected to under-perform the Golden Tobacco. In addition to that, Bank of Maharashtra is 1.06 times more volatile than Golden Tobacco Limited. It trades about -0.04 of its total potential returns per unit of risk. Golden Tobacco Limited is currently generating about -0.01 per unit of volatility. If you would invest  4,100  in Golden Tobacco Limited on September 2, 2024 and sell it today you would lose (98.00) from holding Golden Tobacco Limited or give up 2.39% of portfolio value over 90 days.

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

Bank of Maharashtra  vs.  Golden Tobacco Limited

Bank of Maharashtra

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Maharashtra has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Golden Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Bank of Maharashtra and Golden Tobacco

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

The idea behind Bank of Maharashtra and Golden Tobacco 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.