Correlation Between Tarapur Transformers and Bajaj Holdings

Can any of the company-specific risk be diversified away by investing in both Tarapur Transformers and Bajaj Holdings 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 Tarapur Transformers and Bajaj Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tarapur Transformers Limited and Bajaj Holdings Investment, you can compare the effects of market volatilities on Tarapur Transformers and Bajaj Holdings 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 Tarapur Transformers with a short position of Bajaj Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tarapur Transformers and Bajaj Holdings.

Diversification Opportunities for Tarapur Transformers and Bajaj Holdings

0.57

Correlation Coefficient

Tarapur Transformers  Bajaj Holdings

Very weak diversification

The 3 months correlation between Tarapur and Bajaj is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Tarapur Transformers Limited and Bajaj Holdings Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Holdings Investment and Tarapur Transformers 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 Tarapur Transformers Limited are associated (or correlated) with Bajaj Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bajaj Holdings Investment has no effect on the direction of Tarapur Transformers i.e., Tarapur Transformers and Bajaj Holdings go up and down completely randomly.

Pair Corralation between Tarapur Transformers and Bajaj Holdings

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 1.61 times more return on investment than Bajaj Holdings. However, Tarapur Transformers is 1.61 times more volatile than Bajaj Holdings Investment. It trades about 0.46 of its potential returns per unit of risk. Bajaj Holdings Investment is currently generating about 0.05 per unit of risk. If you would invest  2,121  in Tarapur Transformers Limited on September 25, 2024 and sell it today you would earn a total of  2,337  from holding Tarapur Transformers Limited or generate 110.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Tarapur Transformers Limited  vs.  Bajaj Holdings Investment

Tarapur Transformers

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

Bajaj Holdings Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Holdings Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Bajaj Holdings is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tarapur Transformers and Bajaj Holdings

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

The idea behind Tarapur Transformers Limited and Bajaj Holdings Investment 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.