Correlation Between Bajaj Holdings and Tarapur Transformers

Can any of the company-specific risk be diversified away by investing in both Bajaj Holdings and Tarapur Transformers 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 Tarapur Transformers 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 Tarapur Transformers Limited, you can compare the effects of market volatilities on Bajaj Holdings and Tarapur Transformers 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 Tarapur Transformers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bajaj Holdings and Tarapur Transformers.

Diversification Opportunities for Bajaj Holdings and Tarapur Transformers

0.69

Correlation Coefficient

Bajaj Holdings  Tarapur Transformers

Poor diversification

The 3 months correlation between Bajaj and Tarapur is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bajaj Holdings Investment and Tarapur Transformers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tarapur Transformers 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 Tarapur Transformers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tarapur Transformers has no effect on the direction of Bajaj Holdings i.e., Bajaj Holdings and Tarapur Transformers go up and down completely randomly.

Pair Corralation between Bajaj Holdings and Tarapur Transformers

Assuming the 90 days trading horizon Bajaj Holdings is expected to generate 6.52 times less return on investment than Tarapur Transformers. In addition to that, Bajaj Holdings is 1.09 times more volatile than Tarapur Transformers Limited. It trades about 0.08 of its total potential returns per unit of risk. Tarapur Transformers Limited is currently generating about 0.59 per unit of volatility. If you would invest  1,969  in Tarapur Transformers Limited on October 7, 2024 and sell it today you would earn a total of  2,920  from holding Tarapur Transformers Limited or generate 148.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Bajaj Holdings Investment  vs.  Tarapur Transformers Limited

Bajaj Holdings Investment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Holdings Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Bajaj Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Tarapur Transformers

Risk-Adjusted Performance

46 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 46 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bajaj Holdings and Tarapur Transformers

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

The idea behind Bajaj Holdings Investment and Tarapur Transformers 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 Transaction History module to view history of all your transactions and understand their impact on performance.