Correlation Between Allied Blenders and CEAT

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

By analyzing existing cross correlation between Allied Blenders Distillers and CEAT Limited, you can compare the effects of market volatilities on Allied Blenders and CEAT 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 Allied Blenders with a short position of CEAT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allied Blenders and CEAT.

Diversification Opportunities for Allied Blenders and CEAT

0.78

Correlation Coefficient

Allied Blenders  CEAT

Poor diversification

The 3 months correlation between Allied and CEAT is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Allied Blenders Distillers and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Allied Blenders 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 Allied Blenders Distillers are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of Allied Blenders i.e., Allied Blenders and CEAT go up and down completely randomly.

Pair Corralation between Allied Blenders and CEAT

Assuming the 90 days trading horizon Allied Blenders is expected to generate 106.94 times less return on investment than CEAT. But when comparing it to its historical volatility, Allied Blenders Distillers is 60.04 times less risky than CEAT. It trades about 0.08 of its potential returns per unit of risk. CEAT Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  154,616  in CEAT Limited on October 22, 2024 and sell it today you would earn a total of  147,839  from holding CEAT Limited or generate 95.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	27.97%
Values	Daily Returns

Allied Blenders Distillers  vs.  CEAT Limited

Allied Blenders Dist

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Blenders Distillers are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Allied Blenders unveiled solid returns over the last few months and may actually be approaching a breakup point.

CEAT Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CEAT Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, CEAT is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Allied Blenders and CEAT

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

The idea behind Allied Blenders Distillers and CEAT 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.