Correlation Between Gujarat Alkalies and Electrosteel Castings

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

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

Diversification Opportunities for Gujarat Alkalies and Electrosteel Castings

0.43

Correlation Coefficient

Gujarat Alkalies  Electrosteel Castings

Very weak diversification

The 3 months correlation between Gujarat and Electrosteel is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Alkalies and and Electrosteel Castings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electrosteel Castings and Gujarat Alkalies 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 Alkalies and are associated (or correlated) with Electrosteel Castings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electrosteel Castings has no effect on the direction of Gujarat Alkalies i.e., Gujarat Alkalies and Electrosteel Castings go up and down completely randomly.

Pair Corralation between Gujarat Alkalies and Electrosteel Castings

Assuming the 90 days trading horizon Gujarat Alkalies and is expected to generate 0.58 times more return on investment than Electrosteel Castings. However, Gujarat Alkalies and is 1.72 times less risky than Electrosteel Castings. It trades about -0.01 of its potential returns per unit of risk. Electrosteel Castings Limited is currently generating about -0.15 per unit of risk. If you would invest  82,665  in Gujarat Alkalies and on September 13, 2024 and sell it today you would lose (1,990) from holding Gujarat Alkalies and or give up 2.41% of portfolio value over 90 days.

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

Gujarat Alkalies and  vs.  Electrosteel Castings Limited

Gujarat Alkalies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gujarat Alkalies and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Gujarat Alkalies is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Electrosteel Castings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrosteel Castings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Gujarat Alkalies and Electrosteel Castings

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

The idea behind Gujarat Alkalies and and Electrosteel Castings 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.