Correlation Between Gujarat Fluorochemicals and SAL Steel

Can any of the company-specific risk be diversified away by investing in both Gujarat Fluorochemicals and SAL Steel 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 SAL Steel 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 SAL Steel Limited, you can compare the effects of market volatilities on Gujarat Fluorochemicals and SAL Steel 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 SAL Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gujarat Fluorochemicals and SAL Steel.

Diversification Opportunities for Gujarat Fluorochemicals and SAL Steel

0.36

Correlation Coefficient

Gujarat Fluorochemicals  SAL Steel

Weak diversification

The 3 months correlation between Gujarat and SAL is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Fluorochemicals Limite and SAL Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAL Steel Limited 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 SAL Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAL Steel Limited has no effect on the direction of Gujarat Fluorochemicals i.e., Gujarat Fluorochemicals and SAL Steel go up and down completely randomly.

Pair Corralation between Gujarat Fluorochemicals and SAL Steel

Assuming the 90 days trading horizon Gujarat Fluorochemicals Limited is expected to generate 0.74 times more return on investment than SAL Steel. However, Gujarat Fluorochemicals Limited is 1.35 times less risky than SAL Steel. It trades about 0.05 of its potential returns per unit of risk. SAL Steel Limited is currently generating about -0.01 per unit of risk. If you would invest  416,515  in Gujarat Fluorochemicals Limited on September 19, 2024 and sell it today you would earn a total of  21,100  from holding Gujarat Fluorochemicals Limited or generate 5.07% return on investment over 90 days.

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

Gujarat Fluorochemicals Limite  vs.  SAL Steel Limited

Gujarat Fluorochemicals

Risk-Adjusted Performance

3 of 100

Insignificant

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

SAL Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gujarat Fluorochemicals and SAL Steel

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

The idea behind Gujarat Fluorochemicals Limited and SAL Steel 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..