Correlation Between State Bank and Adani Power

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

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

Diversification Opportunities for State Bank and Adani Power

-0.47

Correlation Coefficient

State Bank  Adani Power

Very good diversification

The 3 months correlation between State and Adani is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Adani Power Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adani Power Limited and State 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 State Bank of are associated (or correlated) with Adani Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adani Power Limited has no effect on the direction of State Bank i.e., State Bank and Adani Power go up and down completely randomly.

Pair Corralation between State Bank and Adani Power

Assuming the 90 days trading horizon State Bank of is expected to generate 0.46 times more return on investment than Adani Power. However, State Bank of is 2.17 times less risky than Adani Power. It trades about 0.08 of its potential returns per unit of risk. Adani Power Limited is currently generating about -0.06 per unit of risk. If you would invest  79,085  in State Bank of on September 13, 2024 and sell it today you would earn a total of  6,285  from holding State Bank of or generate 7.95% return on investment over 90 days.

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

State Bank of  vs.  Adani Power Limited

State Bank

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in State Bank of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, State Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Adani Power Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adani Power Limited 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.

Pair Trading with State Bank and Adani Power

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

The idea behind State Bank of and Adani Power 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.