Correlation Between Nahar Industrial and Tarapur Transformers

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

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

Diversification Opportunities for Nahar Industrial and Tarapur Transformers

0.86

Correlation Coefficient

Nahar Industrial  Tarapur Transformers

Very poor diversification

The 3 months correlation between Nahar and Tarapur is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Nahar Industrial Enterprises and Tarapur Transformers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tarapur Transformers and Nahar Industrial 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 Nahar Industrial Enterprises are associated (or correlated) with Tarapur Transformers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tarapur Transformers has no effect on the direction of Nahar Industrial i.e., Nahar Industrial and Tarapur Transformers go up and down completely randomly.

Pair Corralation between Nahar Industrial and Tarapur Transformers

Assuming the 90 days trading horizon Nahar Industrial Enterprises is expected to under-perform the Tarapur Transformers. But the stock apears to be less risky and, when comparing its historical volatility, Nahar Industrial Enterprises is 1.35 times less risky than Tarapur Transformers. The stock trades about -0.25 of its potential returns per unit of risk. The Tarapur Transformers Limited is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  4,634  in Tarapur Transformers Limited on December 28, 2024 and sell it today you would lose (1,170) from holding Tarapur Transformers Limited or give up 25.25% of portfolio value over 90 days.

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

Nahar Industrial Enterprises  vs.  Tarapur Transformers Limited

Nahar Industrial Ent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nahar Industrial Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Tarapur Transformers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tarapur Transformers Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Nahar Industrial and Tarapur Transformers

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

The idea behind Nahar Industrial Enterprises and Tarapur Transformers 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.