Correlation Between Gujarat Fluorochemicals and Selan Exploration

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

Diversification Opportunities for Gujarat Fluorochemicals and Selan Exploration

-0.61

Correlation Coefficient

Gujarat Fluorochemicals  Selan Exploration

Excellent diversification

The 3 months correlation between Gujarat and Selan is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Fluorochemicals Limite and Selan Exploration Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selan Exploration 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 Selan Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selan Exploration has no effect on the direction of Gujarat Fluorochemicals i.e., Gujarat Fluorochemicals and Selan Exploration go up and down completely randomly.

Pair Corralation between Gujarat Fluorochemicals and Selan Exploration

Assuming the 90 days trading horizon Gujarat Fluorochemicals Limited is expected to under-perform the Selan Exploration. But the stock apears to be less risky and, when comparing its historical volatility, Gujarat Fluorochemicals Limited is 2.03 times less risky than Selan Exploration. The stock trades about -0.25 of its potential returns per unit of risk. The Selan Exploration Technology is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  89,740  in Selan Exploration Technology on September 1, 2024 and sell it today you would lose (1,480) from holding Selan Exploration Technology or give up 1.65% of portfolio value over 90 days.

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

Gujarat Fluorochemicals Limite  vs.  Selan Exploration Technology

Gujarat Fluorochemicals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Fluorochemicals Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Gujarat Fluorochemicals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Selan Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gujarat Fluorochemicals and Selan Exploration

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

The idea behind Gujarat Fluorochemicals Limited and Selan Exploration Technology 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.