Correlation Between Bajaj Holdings and Vishnu Chemicals

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

Diversification Opportunities for Bajaj Holdings and Vishnu Chemicals

-0.4

Correlation Coefficient

Bajaj Holdings  Vishnu Chemicals

Very good diversification

The 3 months correlation between Bajaj and Vishnu is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Bajaj Holdings Investment and Vishnu Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vishnu Chemicals 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 Vishnu Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vishnu Chemicals has no effect on the direction of Bajaj Holdings i.e., Bajaj Holdings and Vishnu Chemicals go up and down completely randomly.

Pair Corralation between Bajaj Holdings and Vishnu Chemicals

Assuming the 90 days trading horizon Bajaj Holdings Investment is expected to generate 0.72 times more return on investment than Vishnu Chemicals. However, Bajaj Holdings Investment is 1.39 times less risky than Vishnu Chemicals. It trades about 0.09 of its potential returns per unit of risk. Vishnu Chemicals Limited is currently generating about 0.03 per unit of risk. If you would invest  576,101  in Bajaj Holdings Investment on October 4, 2024 and sell it today you would earn a total of  611,799  from holding Bajaj Holdings Investment or generate 106.2% return on investment over 90 days.

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

Bajaj Holdings Investment  vs.  Vishnu Chemicals Limited

Bajaj Holdings Investment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Holdings Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, Bajaj Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Vishnu Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vishnu Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, Vishnu Chemicals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bajaj Holdings and Vishnu Chemicals

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

The idea behind Bajaj Holdings Investment and Vishnu Chemicals 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.