Correlation Between Bharti Airtel and CEAT

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

By analyzing existing cross correlation between Bharti Airtel Limited and CEAT Limited, you can compare the effects of market volatilities on Bharti Airtel and CEAT 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 Bharti Airtel with a short position of CEAT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bharti Airtel and CEAT.

Diversification Opportunities for Bharti Airtel and CEAT

-0.34

Correlation Coefficient

Bharti Airtel  CEAT

Very good diversification

The 3 months correlation between Bharti and CEAT is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Bharti Airtel Limited and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Bharti Airtel 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 Bharti Airtel Limited are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of Bharti Airtel i.e., Bharti Airtel and CEAT go up and down completely randomly.

Pair Corralation between Bharti Airtel and CEAT

Assuming the 90 days trading horizon Bharti Airtel Limited is expected to generate 0.6 times more return on investment than CEAT. However, Bharti Airtel Limited is 1.65 times less risky than CEAT. It trades about 0.1 of its potential returns per unit of risk. CEAT Limited is currently generating about -0.04 per unit of risk. If you would invest  159,950  in Bharti Airtel Limited on December 26, 2024 and sell it today you would earn a total of  13,100  from holding Bharti Airtel Limited or generate 8.19% return on investment over 90 days.

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

Bharti Airtel Limited  vs.  CEAT Limited

Bharti Airtel Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bharti Airtel Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Bharti Airtel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

CEAT Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CEAT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, CEAT is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bharti Airtel and CEAT

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

The idea behind Bharti Airtel Limited and CEAT 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.