Correlation Between Fortis Healthcare and CEAT

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

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

Diversification Opportunities for Fortis Healthcare and CEAT

0.84

Correlation Coefficient

Fortis Healthcare  CEAT

Very poor diversification

The 3 months correlation between Fortis and CEAT is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Fortis Healthcare Limited and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Fortis Healthcare 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 Fortis Healthcare Limited are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of Fortis Healthcare i.e., Fortis Healthcare and CEAT go up and down completely randomly.

Pair Corralation between Fortis Healthcare and CEAT

Assuming the 90 days trading horizon Fortis Healthcare Limited is expected to generate 0.98 times more return on investment than CEAT. However, Fortis Healthcare Limited is 1.02 times less risky than CEAT. It trades about -0.03 of its potential returns per unit of risk. CEAT Limited is currently generating about -0.05 per unit of risk. If you would invest  65,015  in Fortis Healthcare Limited on November 28, 2024 and sell it today you would lose (4,180) from holding Fortis Healthcare Limited or give up 6.43% of portfolio value over 90 days.

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

Fortis Healthcare Limited  vs.  CEAT Limited

Fortis Healthcare

Risk-Adjusted Performance

Very Weak

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

CEAT Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CEAT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Fortis Healthcare and CEAT

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

The idea behind Fortis Healthcare Limited and CEAT 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.