Correlation Between AU Small and Gangotri Textiles

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

By analyzing existing cross correlation between AU Small Finance and Gangotri Textiles Limited, you can compare the effects of market volatilities on AU Small and Gangotri Textiles 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 AU Small with a short position of Gangotri Textiles. Check out your portfolio center. Please also check ongoing floating volatility patterns of AU Small and Gangotri Textiles.

Diversification Opportunities for AU Small and Gangotri Textiles

0.66

Correlation Coefficient

AU Small  Gangotri Textiles

Poor diversification

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

Pair Corralation between AU Small and Gangotri Textiles

Assuming the 90 days trading horizon AU Small Finance is expected to generate 1.32 times more return on investment than Gangotri Textiles. However, AU Small is 1.32 times more volatile than Gangotri Textiles Limited. It trades about 0.04 of its potential returns per unit of risk. Gangotri Textiles Limited is currently generating about -0.24 per unit of risk. If you would invest  54,830  in AU Small Finance on December 26, 2024 and sell it today you would earn a total of  2,545  from holding AU Small Finance or generate 4.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

AU Small Finance  vs.  Gangotri Textiles Limited

AU Small Finance

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AU Small Finance are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AU Small may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Gangotri Textiles

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gangotri Textiles Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with AU Small and Gangotri Textiles

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

The idea behind AU Small Finance and Gangotri Textiles 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.