Correlation Between City Union and CEAT

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

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

Diversification Opportunities for City Union and CEAT

0.56

Correlation Coefficient

City Union  CEAT

Very weak diversification

The 3 months correlation between City and CEAT is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding City Union Bank and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and City Union 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 City Union Bank are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of City Union i.e., City Union and CEAT go up and down completely randomly.

Pair Corralation between City Union and CEAT

Assuming the 90 days trading horizon City Union Bank is expected to under-perform the CEAT. But the stock apears to be less risky and, when comparing its historical volatility, City Union Bank is 1.59 times less risky than CEAT. The stock trades about -0.05 of its potential returns per unit of risk. The CEAT Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  283,100  in CEAT Limited on November 20, 2024 and sell it today you would lose (16,675) from holding CEAT Limited or give up 5.89% of portfolio value over 90 days.

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

City Union Bank  vs.  CEAT Limited

City Union Bank

Risk-Adjusted Performance

Very Weak

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

CEAT Limited

Risk-Adjusted Performance

Very Weak

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

Pair Trading with City Union and CEAT

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

The idea behind City Union Bank and CEAT 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.