Correlation Between Bawany Air and Ghandhara Automobile

Can any of the company-specific risk be diversified away by investing in both Bawany Air and Ghandhara Automobile 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 Bawany Air and Ghandhara Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bawany Air Products and Ghandhara Automobile, you can compare the effects of market volatilities on Bawany Air and Ghandhara Automobile 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 Bawany Air with a short position of Ghandhara Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bawany Air and Ghandhara Automobile.

Diversification Opportunities for Bawany Air and Ghandhara Automobile

0.53

Correlation Coefficient

Bawany Air  Ghandhara Automobile

Very weak diversification

The 3 months correlation between Bawany and Ghandhara is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Bawany Air Products and Ghandhara Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ghandhara Automobile and Bawany Air 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 Bawany Air Products are associated (or correlated) with Ghandhara Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ghandhara Automobile has no effect on the direction of Bawany Air i.e., Bawany Air and Ghandhara Automobile go up and down completely randomly.

Pair Corralation between Bawany Air and Ghandhara Automobile

Assuming the 90 days trading horizon Bawany Air Products is expected to generate 1.4 times more return on investment than Ghandhara Automobile. However, Bawany Air is 1.4 times more volatile than Ghandhara Automobile. It trades about 0.08 of its potential returns per unit of risk. Ghandhara Automobile is currently generating about 0.03 per unit of risk. If you would invest  3,309  in Bawany Air Products on October 9, 2024 and sell it today you would earn a total of  191.00  from holding Bawany Air Products or generate 5.77% return on investment over 90 days.

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

Bawany Air Products  vs.  Ghandhara Automobile

Bawany Air Products

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bawany Air Products are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bawany Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Ghandhara Automobile

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ghandhara Automobile are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ghandhara Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bawany Air and Ghandhara Automobile

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

The idea behind Bawany Air Products and Ghandhara Automobile 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.