Correlation Between Tarapur Transformers and GACM Technologies

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

Diversification Opportunities for Tarapur Transformers and GACM Technologies

-0.37

Correlation Coefficient

Tarapur Transformers  GACM Technologies

Very good diversification

The 3 months correlation between Tarapur and GACM is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Tarapur Transformers Limited and GACM Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GACM Technologies 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 GACM Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GACM Technologies has no effect on the direction of Tarapur Transformers i.e., Tarapur Transformers and GACM Technologies go up and down completely randomly.

Pair Corralation between Tarapur Transformers and GACM Technologies

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 1.38 times more return on investment than GACM Technologies. However, Tarapur Transformers is 1.38 times more volatile than GACM Technologies Limited. It trades about 0.79 of its potential returns per unit of risk. GACM Technologies Limited is currently generating about 0.37 per unit of risk. If you would invest  2,999  in Tarapur Transformers Limited on September 24, 2024 and sell it today you would earn a total of  1,550  from holding Tarapur Transformers Limited or generate 51.68% return on investment over 90 days.

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

Tarapur Transformers Limited  vs.  GACM Technologies Limited

Tarapur Transformers

Risk-Adjusted Performance

35 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

GACM Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GACM Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Tarapur Transformers and GACM Technologies

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

The idea behind Tarapur Transformers Limited and GACM Technologies 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 Transaction History module to view history of all your transactions and understand their impact on performance.