Correlation Between Cambridge Technology and Vedanta

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

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

Diversification Opportunities for Cambridge Technology and Vedanta

0.86

Correlation Coefficient

Cambridge Technology  Vedanta

Very poor diversification

The 3 months correlation between Cambridge and Vedanta is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cambridge Technology Enterpris and Vedanta Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vedanta Limited and Cambridge Technology 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 Cambridge Technology Enterprises are associated (or correlated) with Vedanta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vedanta Limited has no effect on the direction of Cambridge Technology i.e., Cambridge Technology and Vedanta go up and down completely randomly.

Pair Corralation between Cambridge Technology and Vedanta

Assuming the 90 days trading horizon Cambridge Technology Enterprises is expected to under-perform the Vedanta. In addition to that, Cambridge Technology is 1.58 times more volatile than Vedanta Limited. It trades about -0.04 of its total potential returns per unit of risk. Vedanta Limited is currently generating about 0.04 per unit of volatility. If you would invest  43,290  in Vedanta Limited on September 27, 2024 and sell it today you would earn a total of  2,755  from holding Vedanta Limited or generate 6.36% return on investment over 90 days.

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

Cambridge Technology Enterpris  vs.  Vedanta Limited

Cambridge Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cambridge Technology Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Cambridge Technology is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vedanta Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vedanta Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Cambridge Technology and Vedanta

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

The idea behind Cambridge Technology Enterprises and Vedanta 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.