Correlation Between Dodla Dairy and Servotech Power

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

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

Diversification Opportunities for Dodla Dairy and Servotech Power

0.04

Correlation Coefficient

Dodla Dairy  Servotech Power

Significant diversification

The 3 months correlation between Dodla and Servotech is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Dodla Dairy Limited 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 Dodla Dairy 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 Dodla Dairy Limited 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 Dodla Dairy i.e., Dodla Dairy and Servotech Power go up and down completely randomly.

Pair Corralation between Dodla Dairy and Servotech Power

Assuming the 90 days trading horizon Dodla Dairy Limited is expected to generate 0.77 times more return on investment than Servotech Power. However, Dodla Dairy Limited is 1.3 times less risky than Servotech Power. It trades about 0.03 of its potential returns per unit of risk. Servotech Power Systems is currently generating about -0.19 per unit of risk. If you would invest  118,535  in Dodla Dairy Limited on October 11, 2024 and sell it today you would earn a total of  1,795  from holding Dodla Dairy Limited or generate 1.51% return on investment over 90 days.

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

Dodla Dairy Limited  vs.  Servotech Power Systems

Dodla Dairy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dodla Dairy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Dodla Dairy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Servotech Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Servotech Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Dodla Dairy and Servotech Power

The main advantage of trading using opposite Dodla Dairy and Servotech Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dodla Dairy 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 Dodla Dairy Limited 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.