Correlation Between Piramal Enterprises and Cholamandalam Financial

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

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

Diversification Opportunities for Piramal Enterprises and Cholamandalam Financial

-0.56

Correlation Coefficient

Piramal Enterprises  Cholamandalam Financial

Excellent diversification

The 3 months correlation between Piramal and Cholamandalam is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Piramal Enterprises Limited and Cholamandalam Financial Holdin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cholamandalam Financial and Piramal Enterprises 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 Piramal Enterprises Limited are associated (or correlated) with Cholamandalam Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cholamandalam Financial has no effect on the direction of Piramal Enterprises i.e., Piramal Enterprises and Cholamandalam Financial go up and down completely randomly.

Pair Corralation between Piramal Enterprises and Cholamandalam Financial

Assuming the 90 days trading horizon Piramal Enterprises Limited is expected to generate 0.89 times more return on investment than Cholamandalam Financial. However, Piramal Enterprises Limited is 1.12 times less risky than Cholamandalam Financial. It trades about 0.13 of its potential returns per unit of risk. Cholamandalam Financial Holdings is currently generating about -0.17 per unit of risk. If you would invest  105,055  in Piramal Enterprises Limited on September 19, 2024 and sell it today you would earn a total of  17,440  from holding Piramal Enterprises Limited or generate 16.6% return on investment over 90 days.

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

Piramal Enterprises Limited  vs.  Cholamandalam Financial Holdin

Piramal Enterprises

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Piramal Enterprises Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, Piramal Enterprises exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cholamandalam Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Piramal Enterprises and Cholamandalam Financial

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

The idea behind Piramal Enterprises Limited and Cholamandalam Financial Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.