Correlation Between Gujarat Narmada and Prakash Steelage

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

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

Diversification Opportunities for Gujarat Narmada and Prakash Steelage

0.66

Correlation Coefficient

Gujarat Narmada  Prakash Steelage

Poor diversification

The 3 months correlation between Gujarat and Prakash is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Narmada Valley and Prakash Steelage Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prakash Steelage and Gujarat Narmada 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 Narmada Valley are associated (or correlated) with Prakash Steelage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prakash Steelage has no effect on the direction of Gujarat Narmada i.e., Gujarat Narmada and Prakash Steelage go up and down completely randomly.

Pair Corralation between Gujarat Narmada and Prakash Steelage

Assuming the 90 days trading horizon Gujarat Narmada Valley is expected to generate 0.62 times more return on investment than Prakash Steelage. However, Gujarat Narmada Valley is 1.6 times less risky than Prakash Steelage. It trades about 0.27 of its potential returns per unit of risk. Prakash Steelage Limited is currently generating about 0.16 per unit of risk. If you would invest  55,850  in Gujarat Narmada Valley on September 19, 2024 and sell it today you would earn a total of  5,430  from holding Gujarat Narmada Valley or generate 9.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Gujarat Narmada Valley  vs.  Prakash Steelage Limited

Gujarat Narmada Valley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gujarat Narmada Valley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gujarat Narmada is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Prakash Steelage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prakash Steelage Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Prakash Steelage is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Gujarat Narmada and Prakash Steelage

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

The idea behind Gujarat Narmada Valley and Prakash Steelage 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.