Correlation Between CEAT and Jyoti CNC

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

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

Diversification Opportunities for CEAT and Jyoti CNC

0.73

Correlation Coefficient

CEAT  Jyoti CNC

Poor diversification

The 3 months correlation between CEAT and Jyoti is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding CEAT Limited and Jyoti CNC Automation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jyoti CNC Automation and CEAT 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 CEAT Limited are associated (or correlated) with Jyoti CNC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jyoti CNC Automation has no effect on the direction of CEAT i.e., CEAT and Jyoti CNC go up and down completely randomly.

Pair Corralation between CEAT and Jyoti CNC

Assuming the 90 days trading horizon CEAT Limited is expected to under-perform the Jyoti CNC. But the stock apears to be less risky and, when comparing its historical volatility, CEAT Limited is 1.36 times less risky than Jyoti CNC. The stock trades about -0.17 of its potential returns per unit of risk. The Jyoti CNC Automation is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  133,545  in Jyoti CNC Automation on October 10, 2024 and sell it today you would earn a total of  2,780  from holding Jyoti CNC Automation or generate 2.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

CEAT Limited  vs.  Jyoti CNC Automation

CEAT Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CEAT Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, CEAT may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Jyoti CNC Automation

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jyoti CNC Automation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Jyoti CNC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CEAT and Jyoti CNC

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

The idea behind CEAT Limited and Jyoti CNC Automation 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.