Correlation Between Golden Tobacco and REC

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

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

Diversification Opportunities for Golden Tobacco and REC

0.49

Correlation Coefficient

Golden Tobacco  REC

Very weak diversification

The 3 months correlation between Golden and REC is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Golden Tobacco Limited and REC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REC Limited and Golden Tobacco 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 Golden Tobacco Limited are associated (or correlated) with REC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REC Limited has no effect on the direction of Golden Tobacco i.e., Golden Tobacco and REC go up and down completely randomly.

Pair Corralation between Golden Tobacco and REC

Assuming the 90 days trading horizon Golden Tobacco Limited is expected to generate 1.54 times more return on investment than REC. However, Golden Tobacco is 1.54 times more volatile than REC Limited. It trades about -0.01 of its potential returns per unit of risk. REC Limited is currently generating about -0.09 per unit of risk. If you would invest  3,998  in Golden Tobacco Limited on October 7, 2024 and sell it today you would lose (55.00) from holding Golden Tobacco Limited or give up 1.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Golden Tobacco Limited  vs.  REC Limited

Golden Tobacco

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Tobacco Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Golden Tobacco is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

REC Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in REC Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady essential indicators, REC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Golden Tobacco and REC

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

The idea behind Golden Tobacco Limited and REC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.