Correlation Between Parag Milk and Bombay Burmah

Can any of the company-specific risk be diversified away by investing in both Parag Milk and Bombay Burmah 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 Parag Milk and Bombay Burmah into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Parag Milk Foods and Bombay Burmah Trading, you can compare the effects of market volatilities on Parag Milk and Bombay Burmah 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 Parag Milk with a short position of Bombay Burmah. Check out your portfolio center. Please also check ongoing floating volatility patterns of Parag Milk and Bombay Burmah.

Diversification Opportunities for Parag Milk and Bombay Burmah

0.89

Correlation Coefficient

Parag Milk  Bombay Burmah

Very poor diversification

The 3 months correlation between Parag and Bombay is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Parag Milk Foods and Bombay Burmah Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bombay Burmah Trading and Parag Milk 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 Parag Milk Foods are associated (or correlated) with Bombay Burmah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bombay Burmah Trading has no effect on the direction of Parag Milk i.e., Parag Milk and Bombay Burmah go up and down completely randomly.

Pair Corralation between Parag Milk and Bombay Burmah

Assuming the 90 days trading horizon Parag Milk Foods is expected to under-perform the Bombay Burmah. But the stock apears to be less risky and, when comparing its historical volatility, Parag Milk Foods is 1.1 times less risky than Bombay Burmah. The stock trades about -0.19 of its potential returns per unit of risk. The Bombay Burmah Trading is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  238,934  in Bombay Burmah Trading on November 29, 2024 and sell it today you would lose (59,494) from holding Bombay Burmah Trading or give up 24.9% of portfolio value over 90 days.

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

Parag Milk Foods  vs.  Bombay Burmah Trading

Parag Milk Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Parag Milk Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Bombay Burmah Trading

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bombay Burmah Trading has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Parag Milk and Bombay Burmah

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

The idea behind Parag Milk Foods and Bombay Burmah Trading 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.