Correlation Between Centum Electronics and Gujarat Alkalies

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

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

Diversification Opportunities for Centum Electronics and Gujarat Alkalies

-0.36

Correlation Coefficient

Centum Electronics  Gujarat Alkalies

Very good diversification

The 3 months correlation between Centum and Gujarat is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Centum Electronics Limited and Gujarat Alkalies and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Alkalies and Centum Electronics 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 Centum Electronics Limited are associated (or correlated) with Gujarat Alkalies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Alkalies has no effect on the direction of Centum Electronics i.e., Centum Electronics and Gujarat Alkalies go up and down completely randomly.

Pair Corralation between Centum Electronics and Gujarat Alkalies

Assuming the 90 days trading horizon Centum Electronics Limited is expected to generate 3.44 times more return on investment than Gujarat Alkalies. However, Centum Electronics is 3.44 times more volatile than Gujarat Alkalies and. It trades about 0.11 of its potential returns per unit of risk. Gujarat Alkalies and is currently generating about -0.16 per unit of risk. If you would invest  178,905  in Centum Electronics Limited on October 9, 2024 and sell it today you would earn a total of  31,530  from holding Centum Electronics Limited or generate 17.62% return on investment over 90 days.

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

Centum Electronics Limited  vs.  Gujarat Alkalies and

Centum Electronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Centum Electronics Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Centum Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Gujarat Alkalies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gujarat Alkalies and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Centum Electronics and Gujarat Alkalies

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

The idea behind Centum Electronics Limited and Gujarat Alkalies and 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.