Correlation Between Tarapur Transformers and Chalet Hotels

Can any of the company-specific risk be diversified away by investing in both Tarapur Transformers and Chalet Hotels 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 Chalet Hotels 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 Chalet Hotels Limited, you can compare the effects of market volatilities on Tarapur Transformers and Chalet Hotels 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 Chalet Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tarapur Transformers and Chalet Hotels.

Diversification Opportunities for Tarapur Transformers and Chalet Hotels

0.66

Correlation Coefficient

Tarapur Transformers  Chalet Hotels

Poor diversification

The 3 months correlation between Tarapur and Chalet is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Tarapur Transformers Limited and Chalet Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chalet Hotels Limited 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 Chalet Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chalet Hotels Limited has no effect on the direction of Tarapur Transformers i.e., Tarapur Transformers and Chalet Hotels go up and down completely randomly.

Pair Corralation between Tarapur Transformers and Chalet Hotels

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 1.12 times more return on investment than Chalet Hotels. However, Tarapur Transformers is 1.12 times more volatile than Chalet Hotels Limited. It trades about 0.43 of its potential returns per unit of risk. Chalet Hotels Limited is currently generating about 0.07 per unit of risk. If you would invest  2,210  in Tarapur Transformers Limited on September 23, 2024 and sell it today you would earn a total of  2,339  from holding Tarapur Transformers Limited or generate 105.84% return on investment over 90 days.

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

Tarapur Transformers Limited  vs.  Chalet Hotels Limited

Tarapur Transformers

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 34 (%) 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.

Chalet Hotels Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chalet Hotels Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting essential indicators, Chalet Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tarapur Transformers and Chalet Hotels

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

The idea behind Tarapur Transformers Limited and Chalet Hotels 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.