Correlation Between IDBI Bank and Bajaj Holdings

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

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

Diversification Opportunities for IDBI Bank and Bajaj Holdings

-0.44

Correlation Coefficient

IDBI Bank  Bajaj Holdings

Very good diversification

The 3 months correlation between IDBI and Bajaj is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding IDBI Bank Limited and Bajaj Holdings Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Holdings Investment and IDBI Bank 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 IDBI Bank Limited are associated (or correlated) with Bajaj Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bajaj Holdings Investment has no effect on the direction of IDBI Bank i.e., IDBI Bank and Bajaj Holdings go up and down completely randomly.

Pair Corralation between IDBI Bank and Bajaj Holdings

Assuming the 90 days trading horizon IDBI Bank Limited is expected to under-perform the Bajaj Holdings. In addition to that, IDBI Bank is 1.08 times more volatile than Bajaj Holdings Investment. It trades about -0.04 of its total potential returns per unit of risk. Bajaj Holdings Investment is currently generating about 0.07 per unit of volatility. If you would invest  1,050,000  in Bajaj Holdings Investment on November 29, 2024 and sell it today you would earn a total of  114,205  from holding Bajaj Holdings Investment or generate 10.88% return on investment over 90 days.

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

IDBI Bank Limited  vs.  Bajaj Holdings Investment

IDBI Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days IDBI Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent 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.

Bajaj Holdings Investment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Holdings Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent fundamental indicators, Bajaj Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IDBI Bank and Bajaj Holdings

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

The idea behind IDBI Bank Limited and Bajaj Holdings Investment 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.