Correlation Between Bharti Airtel and Power Finance

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

Diversification Opportunities for Bharti Airtel and Power Finance

-0.09

Correlation Coefficient

Bharti Airtel  Power Finance

Good diversification

The 3 months correlation between Bharti and Power is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Bharti Airtel Limited and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance 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 Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of Bharti Airtel i.e., Bharti Airtel and Power Finance go up and down completely randomly.

Pair Corralation between Bharti Airtel and Power Finance

Assuming the 90 days trading horizon Bharti Airtel is expected to generate 1.79 times less return on investment than Power Finance. But when comparing it to its historical volatility, Bharti Airtel Limited is 1.77 times less risky than Power Finance. It trades about 0.04 of its potential returns per unit of risk. Power Finance is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  48,745  in Power Finance on September 14, 2024 and sell it today you would earn a total of  2,030  from holding Power Finance or generate 4.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Bharti Airtel Limited  vs.  Power Finance

Bharti Airtel Limited

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bharti Airtel Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bharti Airtel is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Power Finance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power Finance are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Power Finance is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bharti Airtel and Power Finance

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

The idea behind Bharti Airtel Limited and Power Finance 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.