Correlation Between Thirumalai Chemicals and Gujarat Raffia

Can any of the company-specific risk be diversified away by investing in both Thirumalai Chemicals and Gujarat Raffia 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 Thirumalai Chemicals and Gujarat Raffia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Thirumalai Chemicals Limited and Gujarat Raffia Industries, you can compare the effects of market volatilities on Thirumalai Chemicals and Gujarat Raffia 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 Thirumalai Chemicals with a short position of Gujarat Raffia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thirumalai Chemicals and Gujarat Raffia.

Diversification Opportunities for Thirumalai Chemicals and Gujarat Raffia

0.65

Correlation Coefficient

Thirumalai Chemicals  Gujarat Raffia

Poor diversification

The 3 months correlation between Thirumalai and Gujarat is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Thirumalai Chemicals Limited and Gujarat Raffia Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Raffia Industries and Thirumalai Chemicals 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 Thirumalai Chemicals Limited are associated (or correlated) with Gujarat Raffia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Raffia Industries has no effect on the direction of Thirumalai Chemicals i.e., Thirumalai Chemicals and Gujarat Raffia go up and down completely randomly.

Pair Corralation between Thirumalai Chemicals and Gujarat Raffia

Assuming the 90 days trading horizon Thirumalai Chemicals is expected to generate 4.32 times less return on investment than Gujarat Raffia. But when comparing it to its historical volatility, Thirumalai Chemicals Limited is 1.28 times less risky than Gujarat Raffia. It trades about 0.05 of its potential returns per unit of risk. Gujarat Raffia Industries is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,662  in Gujarat Raffia Industries on September 17, 2024 and sell it today you would earn a total of  1,841  from holding Gujarat Raffia Industries or generate 39.49% return on investment over 90 days.

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

Thirumalai Chemicals Limited  vs.  Gujarat Raffia Industries

Thirumalai Chemicals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Thirumalai Chemicals Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, Thirumalai Chemicals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Gujarat Raffia Industries

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Raffia Industries are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Gujarat Raffia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thirumalai Chemicals and Gujarat Raffia

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

The idea behind Thirumalai Chemicals Limited and Gujarat Raffia Industries 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.