Correlation Between Golden Tobacco and Zuari Agro

Can any of the company-specific risk be diversified away by investing in both Golden Tobacco and Zuari Agro 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 Zuari Agro 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 Zuari Agro Chemicals, you can compare the effects of market volatilities on Golden Tobacco and Zuari Agro 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 Zuari Agro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Golden Tobacco and Zuari Agro.

Diversification Opportunities for Golden Tobacco and Zuari Agro

0.26

Correlation Coefficient

Golden Tobacco  Zuari Agro

Modest diversification

The 3 months correlation between Golden and Zuari is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Golden Tobacco Limited and Zuari Agro Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zuari Agro Chemicals 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 Zuari Agro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zuari Agro Chemicals has no effect on the direction of Golden Tobacco i.e., Golden Tobacco and Zuari Agro go up and down completely randomly.

Pair Corralation between Golden Tobacco and Zuari Agro

Assuming the 90 days trading horizon Golden Tobacco Limited is expected to generate 1.0 times more return on investment than Zuari Agro. However, Golden Tobacco is 1.0 times more volatile than Zuari Agro Chemicals. It trades about 0.07 of its potential returns per unit of risk. Zuari Agro Chemicals is currently generating about 0.01 per unit of risk. If you would invest  3,770  in Golden Tobacco Limited on September 27, 2024 and sell it today you would earn a total of  131.00  from holding Golden Tobacco Limited or generate 3.47% return on investment over 90 days.

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

Golden Tobacco Limited  vs.  Zuari Agro Chemicals

Golden Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

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

Zuari Agro Chemicals

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Golden Tobacco and Zuari Agro

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

The idea behind Golden Tobacco Limited and Zuari Agro Chemicals 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.