Correlation Between Gujarat Fluorochemicals and Energy Development

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

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

Diversification Opportunities for Gujarat Fluorochemicals and Energy Development

-0.04

Correlation Coefficient

Gujarat Fluorochemicals  Energy Development

Good diversification

The 3 months correlation between Gujarat and Energy is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Fluorochemicals Limite and Energy Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Development and Gujarat Fluorochemicals 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 Gujarat Fluorochemicals Limited are associated (or correlated) with Energy Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Development has no effect on the direction of Gujarat Fluorochemicals i.e., Gujarat Fluorochemicals and Energy Development go up and down completely randomly.

Pair Corralation between Gujarat Fluorochemicals and Energy Development

Assuming the 90 days trading horizon Gujarat Fluorochemicals Limited is expected to generate 0.66 times more return on investment than Energy Development. However, Gujarat Fluorochemicals Limited is 1.52 times less risky than Energy Development. It trades about 0.05 of its potential returns per unit of risk. Energy Development is currently generating about 0.03 per unit of risk. If you would invest  269,583  in Gujarat Fluorochemicals Limited on October 10, 2024 and sell it today you would earn a total of  123,017  from holding Gujarat Fluorochemicals Limited or generate 45.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Gujarat Fluorochemicals Limite  vs.  Energy Development

Gujarat Fluorochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gujarat Fluorochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical 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.

Energy Development

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Development are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Energy Development may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Gujarat Fluorochemicals and Energy Development

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

The idea behind Gujarat Fluorochemicals Limited and Energy Development 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.