Correlation Between Diamond Power and Thermax

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

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

Diversification Opportunities for Diamond Power and Thermax

-0.16

Correlation Coefficient

Diamond Power  Thermax

Good diversification

The 3 months correlation between Diamond and Thermax is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Power Infrastructure and Thermax Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thermax Limited and Diamond Power 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 Diamond Power Infrastructure are associated (or correlated) with Thermax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thermax Limited has no effect on the direction of Diamond Power i.e., Diamond Power and Thermax go up and down completely randomly.

Pair Corralation between Diamond Power and Thermax

Assuming the 90 days trading horizon Diamond Power Infrastructure is expected to generate 69.18 times more return on investment than Thermax. However, Diamond Power is 69.18 times more volatile than Thermax Limited. It trades about 0.14 of its potential returns per unit of risk. Thermax Limited is currently generating about -0.03 per unit of risk. If you would invest  18,179  in Diamond Power Infrastructure on September 17, 2024 and sell it today you would lose (1,774) from holding Diamond Power Infrastructure or give up 9.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

Diamond Power Infrastructure  vs.  Thermax Limited

Diamond Power Infras

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Power Infrastructure are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Diamond Power unveiled solid returns over the last few months and may actually be approaching a breakup point.

Thermax Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thermax Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Thermax is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diamond Power and Thermax

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

The idea behind Diamond Power Infrastructure and Thermax 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.