Correlation Between Cholamandalam Financial and Servotech Power

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

By analyzing existing cross correlation between Cholamandalam Financial Holdings and Servotech Power Systems, you can compare the effects of market volatilities on Cholamandalam Financial and Servotech Power 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 Cholamandalam Financial with a short position of Servotech Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cholamandalam Financial and Servotech Power.

Diversification Opportunities for Cholamandalam Financial and Servotech Power

0.27

Correlation Coefficient

Cholamandalam Financial  Servotech Power

Modest diversification

The 3 months correlation between Cholamandalam and Servotech is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Cholamandalam Financial Holdin and Servotech Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Servotech Power Systems and Cholamandalam Financial 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 Cholamandalam Financial Holdings are associated (or correlated) with Servotech Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Servotech Power Systems has no effect on the direction of Cholamandalam Financial i.e., Cholamandalam Financial and Servotech Power go up and down completely randomly.

Pair Corralation between Cholamandalam Financial and Servotech Power

Assuming the 90 days trading horizon Cholamandalam Financial Holdings is expected to under-perform the Servotech Power. But the stock apears to be less risky and, when comparing its historical volatility, Cholamandalam Financial Holdings is 1.49 times less risky than Servotech Power. The stock trades about -0.06 of its potential returns per unit of risk. The Servotech Power Systems is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  14,545  in Servotech Power Systems on September 4, 2024 and sell it today you would earn a total of  3,318  from holding Servotech Power Systems or generate 22.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Cholamandalam Financial Holdin  vs.  Servotech Power Systems

Cholamandalam Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Servotech Power Systems

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Servotech Power Systems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Servotech Power exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cholamandalam Financial and Servotech Power

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

The idea behind Cholamandalam Financial Holdings and Servotech Power Systems 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 Commodity Directory module to find actively traded commodities issued by global exchanges.