Correlation Between Bajaj Holdings and Cambridge Technology

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

By analyzing existing cross correlation between Bajaj Holdings Investment and Cambridge Technology Enterprises, you can compare the effects of market volatilities on Bajaj Holdings and Cambridge Technology 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 Holdings with a short position of Cambridge Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bajaj Holdings and Cambridge Technology.

Diversification Opportunities for Bajaj Holdings and Cambridge Technology

0.5

Correlation Coefficient

Bajaj Holdings  Cambridge Technology

Very weak diversification

The 3 months correlation between Bajaj and Cambridge is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Bajaj Holdings Investment and Cambridge Technology Enterpris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambridge Technology and Bajaj Holdings 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 Holdings Investment are associated (or correlated) with Cambridge Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambridge Technology has no effect on the direction of Bajaj Holdings i.e., Bajaj Holdings and Cambridge Technology go up and down completely randomly.

Pair Corralation between Bajaj Holdings and Cambridge Technology

Assuming the 90 days trading horizon Bajaj Holdings is expected to generate 1.57 times less return on investment than Cambridge Technology. But when comparing it to its historical volatility, Bajaj Holdings Investment is 1.82 times less risky than Cambridge Technology. It trades about 0.23 of its potential returns per unit of risk. Cambridge Technology Enterprises is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  8,678  in Cambridge Technology Enterprises on September 28, 2024 and sell it today you would earn a total of  1,280  from holding Cambridge Technology Enterprises or generate 14.75% return on investment over 90 days.

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

Bajaj Holdings Investment  vs.  Cambridge Technology Enterpris

Bajaj Holdings Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Holdings Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Bajaj Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cambridge Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cambridge Technology Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Bajaj Holdings and Cambridge Technology

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

The idea behind Bajaj Holdings Investment and Cambridge Technology Enterprises 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.