Correlation Between Blue Coast and Wipro

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

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

Diversification Opportunities for Blue Coast and Wipro

0.01

Correlation Coefficient

Blue Coast  Wipro

Significant diversification

The 3 months correlation between Blue and Wipro is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Blue Coast Hotels and Wipro Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wipro Limited and Blue Coast 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 Blue Coast Hotels are associated (or correlated) with Wipro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wipro Limited has no effect on the direction of Blue Coast i.e., Blue Coast and Wipro go up and down completely randomly.

Pair Corralation between Blue Coast and Wipro

Assuming the 90 days trading horizon Blue Coast Hotels is expected to generate 0.23 times more return on investment than Wipro. However, Blue Coast Hotels is 4.33 times less risky than Wipro. It trades about 0.46 of its potential returns per unit of risk. Wipro Limited is currently generating about 0.07 per unit of risk. If you would invest  1,051  in Blue Coast Hotels on October 25, 2024 and sell it today you would earn a total of  1,587  from holding Blue Coast Hotels or generate 151.0% return on investment over 90 days.

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

Blue Coast Hotels  vs.  Wipro Limited

Blue Coast Hotels

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Coast Hotels are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Blue Coast sustained solid returns over the last few months and may actually be approaching a breakup point.

Wipro Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wipro Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Wipro displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Blue Coast and Wipro

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

The idea behind Blue Coast Hotels and Wipro 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.