Correlation Between Gujarat Lease and Servotech Power

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

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

Diversification Opportunities for Gujarat Lease and Servotech Power

-0.15

Correlation Coefficient

Gujarat Lease  Servotech Power

Good diversification

The 3 months correlation between Gujarat and Servotech is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Lease Financing 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 Gujarat Lease 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 Lease Financing 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 Gujarat Lease i.e., Gujarat Lease and Servotech Power go up and down completely randomly.

Pair Corralation between Gujarat Lease and Servotech Power

Assuming the 90 days trading horizon Gujarat Lease is expected to generate 1.87 times less return on investment than Servotech Power. But when comparing it to its historical volatility, Gujarat Lease Financing is 1.35 times less risky than Servotech Power. It trades about 0.08 of its potential returns per unit of risk. Servotech Power Systems is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,157  in Servotech Power Systems on September 20, 2024 and sell it today you would earn a total of  13,741  from holding Servotech Power Systems or generate 435.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

Gujarat Lease Financing  vs.  Servotech Power Systems

Gujarat Lease Financing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Gujarat Lease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 rather sound technical and fundamental indicators, Servotech Power is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Gujarat Lease and Servotech Power

The main advantage of trading using opposite Gujarat Lease and Servotech Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gujarat Lease 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 Gujarat Lease Financing 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.