Correlation Between Tarapur Transformers and Gujarat Lease

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

Diversification Opportunities for Tarapur Transformers and Gujarat Lease

0.47

Correlation Coefficient

Tarapur Transformers  Gujarat Lease

Very weak diversification

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

Pair Corralation between Tarapur Transformers and Gujarat Lease

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 1.1 times more return on investment than Gujarat Lease. However, Tarapur Transformers is 1.1 times more volatile than Gujarat Lease Financing. It trades about 0.46 of its potential returns per unit of risk. Gujarat Lease Financing 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	100.0%
Values	Daily Returns

Tarapur Transformers Limited  vs.  Gujarat Lease Financing

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.

Gujarat Lease Financing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Gujarat Lease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tarapur Transformers and Gujarat Lease

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

The idea behind Tarapur Transformers Limited and Gujarat Lease Financing 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 CEOs Directory module to screen CEOs from public companies around the world.