Correlation Between Gujarat Narmada and UltraTech Cement

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

Diversification Opportunities for Gujarat Narmada and UltraTech Cement

0.76

Correlation Coefficient

Gujarat Narmada  UltraTech Cement

Poor diversification

The 3 months correlation between Gujarat and UltraTech is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Narmada Valley and UltraTech Cement Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UltraTech Cement 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 UltraTech Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UltraTech Cement has no effect on the direction of Gujarat Narmada i.e., Gujarat Narmada and UltraTech Cement go up and down completely randomly.

Pair Corralation between Gujarat Narmada and UltraTech Cement

Assuming the 90 days trading horizon Gujarat Narmada Valley is expected to under-perform the UltraTech Cement. In addition to that, Gujarat Narmada is 1.67 times more volatile than UltraTech Cement Limited. It trades about -0.04 of its total potential returns per unit of risk. UltraTech Cement Limited is currently generating about -0.02 per unit of volatility. If you would invest  1,144,200  in UltraTech Cement Limited on September 3, 2024 and sell it today you would lose (23,985) from holding UltraTech Cement Limited or give up 2.1% of portfolio value over 90 days.

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

Gujarat Narmada Valley  vs.  UltraTech Cement 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

UltraTech Cement

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gujarat Narmada and UltraTech Cement

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

The idea behind Gujarat Narmada Valley and UltraTech Cement 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.