Correlation Between Bajaj Healthcare and Gujarat Fluorochemicals

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

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

Diversification Opportunities for Bajaj Healthcare and Gujarat Fluorochemicals

0.15

Correlation Coefficient

Bajaj Healthcare  Gujarat Fluorochemicals

Average diversification

The 3 months correlation between Bajaj and Gujarat is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Bajaj Healthcare Limited and Gujarat Fluorochemicals Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Fluorochemicals and Bajaj Healthcare 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 Bajaj Healthcare Limited are associated (or correlated) with Gujarat Fluorochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Fluorochemicals has no effect on the direction of Bajaj Healthcare i.e., Bajaj Healthcare and Gujarat Fluorochemicals go up and down completely randomly.

Pair Corralation between Bajaj Healthcare and Gujarat Fluorochemicals

Assuming the 90 days trading horizon Bajaj Healthcare Limited is expected to generate 1.52 times more return on investment than Gujarat Fluorochemicals. However, Bajaj Healthcare is 1.52 times more volatile than Gujarat Fluorochemicals Limited. It trades about 0.11 of its potential returns per unit of risk. Gujarat Fluorochemicals Limited is currently generating about 0.11 per unit of risk. If you would invest  35,366  in Bajaj Healthcare Limited on September 29, 2024 and sell it today you would earn a total of  19,989  from holding Bajaj Healthcare Limited or generate 56.52% return on investment over 90 days.

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

Bajaj Healthcare Limited  vs.  Gujarat Fluorochemicals Limite

Bajaj Healthcare

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Healthcare Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Bajaj Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Gujarat Fluorochemicals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Fluorochemicals Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Gujarat Fluorochemicals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bajaj Healthcare and Gujarat Fluorochemicals

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

The idea behind Bajaj Healthcare Limited and Gujarat Fluorochemicals 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.