Correlation Between Indian Hotels and Piramal Enterprises

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

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

Diversification Opportunities for Indian Hotels and Piramal Enterprises

0.64

Correlation Coefficient

Indian Hotels  Piramal Enterprises

Poor diversification

The 3 months correlation between Indian and Piramal is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Indian Hotels and Piramal Enterprises Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piramal Enterprises and Indian Hotels 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 The Indian Hotels are associated (or correlated) with Piramal Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piramal Enterprises has no effect on the direction of Indian Hotels i.e., Indian Hotels and Piramal Enterprises go up and down completely randomly.

Pair Corralation between Indian Hotels and Piramal Enterprises

Assuming the 90 days trading horizon The Indian Hotels is expected to generate 0.72 times more return on investment than Piramal Enterprises. However, The Indian Hotels is 1.4 times less risky than Piramal Enterprises. It trades about 0.23 of its potential returns per unit of risk. Piramal Enterprises Limited is currently generating about -0.32 per unit of risk. If you would invest  82,010  in The Indian Hotels on October 6, 2024 and sell it today you would earn a total of  5,235  from holding The Indian Hotels or generate 6.38% return on investment over 90 days.

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

The Indian Hotels  vs.  Piramal Enterprises Limited

Indian Hotels

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Indian Hotels are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Indian Hotels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Piramal Enterprises

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Piramal Enterprises Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Piramal Enterprises may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Indian Hotels and Piramal Enterprises

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

The idea behind The Indian Hotels and Piramal Enterprises 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.