Correlation Between Bombay Burmah and Edelweiss Financial

Can any of the company-specific risk be diversified away by investing in both Bombay Burmah and Edelweiss Financial 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 Bombay Burmah and Edelweiss Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bombay Burmah Trading and Edelweiss Financial Services, you can compare the effects of market volatilities on Bombay Burmah and Edelweiss Financial 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 Bombay Burmah with a short position of Edelweiss Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bombay Burmah and Edelweiss Financial.

Diversification Opportunities for Bombay Burmah and Edelweiss Financial

-0.16

Correlation Coefficient

Bombay Burmah  Edelweiss Financial

Good diversification

The 3 months correlation between Bombay and Edelweiss is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Bombay Burmah Trading and Edelweiss Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edelweiss Financial and Bombay Burmah 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 Bombay Burmah Trading are associated (or correlated) with Edelweiss Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edelweiss Financial has no effect on the direction of Bombay Burmah i.e., Bombay Burmah and Edelweiss Financial go up and down completely randomly.

Pair Corralation between Bombay Burmah and Edelweiss Financial

Assuming the 90 days trading horizon Bombay Burmah is expected to generate 1.36 times less return on investment than Edelweiss Financial. But when comparing it to its historical volatility, Bombay Burmah Trading is 1.12 times less risky than Edelweiss Financial. It trades about 0.07 of its potential returns per unit of risk. Edelweiss Financial Services is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,751  in Edelweiss Financial Services on September 23, 2024 and sell it today you would earn a total of  5,799  from holding Edelweiss Financial Services or generate 85.9% return on investment over 90 days.

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

Bombay Burmah Trading  vs.  Edelweiss Financial Services

Bombay Burmah Trading

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bombay Burmah Trading has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Edelweiss Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edelweiss Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Bombay Burmah and Edelweiss Financial

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

The idea behind Bombay Burmah Trading and Edelweiss Financial Services 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.