Correlation Between Chambal Fertilizers and Praj Industries

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

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

Diversification Opportunities for Chambal Fertilizers and Praj Industries

0.71

Correlation Coefficient

Chambal Fertilizers  Praj Industries

Poor diversification

The 3 months correlation between Chambal and Praj is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Chambal Fertilizers Chemicals and Praj Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Praj Industries and Chambal Fertilizers 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 Chambal Fertilizers Chemicals are associated (or correlated) with Praj Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Praj Industries has no effect on the direction of Chambal Fertilizers i.e., Chambal Fertilizers and Praj Industries go up and down completely randomly.

Pair Corralation between Chambal Fertilizers and Praj Industries

Assuming the 90 days trading horizon Chambal Fertilizers is expected to generate 3.14 times less return on investment than Praj Industries. But when comparing it to its historical volatility, Chambal Fertilizers Chemicals is 1.36 times less risky than Praj Industries. It trades about 0.06 of its potential returns per unit of risk. Praj Industries Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  71,440  in Praj Industries Limited on October 6, 2024 and sell it today you would earn a total of  12,195  from holding Praj Industries Limited or generate 17.07% return on investment over 90 days.

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

Chambal Fertilizers Chemicals  vs.  Praj Industries Limited

Chambal Fertilizers

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chambal Fertilizers Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical and fundamental indicators, Chambal Fertilizers may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Praj Industries

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Praj Industries Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward indicators, Praj Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chambal Fertilizers and Praj Industries

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

The idea behind Chambal Fertilizers Chemicals and Praj Industries 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.