Correlation Between Power FinanceLimited and Garware Technical

Can any of the company-specific risk be diversified away by investing in both Power FinanceLimited and Garware Technical 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 Power FinanceLimited and Garware Technical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Power Finance and Garware Technical Fibres, you can compare the effects of market volatilities on Power FinanceLimited and Garware Technical 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 Power FinanceLimited with a short position of Garware Technical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power FinanceLimited and Garware Technical.

Diversification Opportunities for Power FinanceLimited and Garware Technical

0.84

Correlation Coefficient

Power FinanceLimited  Garware Technical

Very poor diversification

The 3 months correlation between Power and Garware is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Power Finance and Garware Technical Fibres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garware Technical Fibres and Power FinanceLimited 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 Power Finance are associated (or correlated) with Garware Technical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garware Technical Fibres has no effect on the direction of Power FinanceLimited i.e., Power FinanceLimited and Garware Technical go up and down completely randomly.

Pair Corralation between Power FinanceLimited and Garware Technical

Assuming the 90 days trading horizon Power Finance is expected to generate 1.12 times more return on investment than Garware Technical. However, Power FinanceLimited is 1.12 times more volatile than Garware Technical Fibres. It trades about -0.01 of its potential returns per unit of risk. Garware Technical Fibres is currently generating about -0.04 per unit of risk. If you would invest  44,301  in Power Finance on December 25, 2024 and sell it today you would lose (1,751) from holding Power Finance or give up 3.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Power Finance  vs.  Garware Technical Fibres

Power FinanceLimited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Power FinanceLimited is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Garware Technical Fibres

Risk-Adjusted Performance

Very Weak

Over the last 90 days Garware Technical Fibres has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Power FinanceLimited and Garware Technical

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

The idea behind Power Finance and Garware Technical Fibres 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.