Correlation Between Gujarat Narmada and Zenith Steel

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

Diversification Opportunities for Gujarat Narmada and Zenith Steel

0.6

Correlation Coefficient

Gujarat Narmada  Zenith Steel

Poor diversification

The 3 months correlation between Gujarat and Zenith is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Narmada Valley and Zenith Steel Pipes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zenith Steel Pipes 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 Zenith Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zenith Steel Pipes has no effect on the direction of Gujarat Narmada i.e., Gujarat Narmada and Zenith Steel go up and down completely randomly.

Pair Corralation between Gujarat Narmada and Zenith Steel

Assuming the 90 days trading horizon Gujarat Narmada Valley is expected to generate 0.91 times more return on investment than Zenith Steel. However, Gujarat Narmada Valley is 1.1 times less risky than Zenith Steel. It trades about -0.04 of its potential returns per unit of risk. Zenith Steel Pipes is currently generating about -0.06 per unit of risk. If you would invest  69,590  in Gujarat Narmada Valley on September 4, 2024 and sell it today you would lose (4,365) from holding Gujarat Narmada Valley or give up 6.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Gujarat Narmada Valley  vs.  Zenith Steel Pipes

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Zenith Steel Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zenith Steel Pipes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Gujarat Narmada and Zenith Steel

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

The idea behind Gujarat Narmada Valley and Zenith Steel Pipes 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.