Correlation Between Rainbow Childrens and Bajaj Healthcare

Can any of the company-specific risk be diversified away by investing in both Rainbow Childrens and Bajaj Healthcare 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 Rainbow Childrens and Bajaj Healthcare into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rainbow Childrens Medicare and Bajaj Healthcare Limited, you can compare the effects of market volatilities on Rainbow Childrens and Bajaj Healthcare 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 Rainbow Childrens with a short position of Bajaj Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rainbow Childrens and Bajaj Healthcare.

Diversification Opportunities for Rainbow Childrens and Bajaj Healthcare

-0.58

Correlation Coefficient

Rainbow Childrens  Bajaj Healthcare

Excellent diversification

The 3 months correlation between Rainbow and Bajaj is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Rainbow Childrens Medicare and Bajaj Healthcare Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Healthcare and Rainbow Childrens 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 Rainbow Childrens Medicare are associated (or correlated) with Bajaj Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bajaj Healthcare has no effect on the direction of Rainbow Childrens i.e., Rainbow Childrens and Bajaj Healthcare go up and down completely randomly.

Pair Corralation between Rainbow Childrens and Bajaj Healthcare

Assuming the 90 days trading horizon Rainbow Childrens Medicare is expected to under-perform the Bajaj Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, Rainbow Childrens Medicare is 2.4 times less risky than Bajaj Healthcare. The stock trades about -0.05 of its potential returns per unit of risk. The Bajaj Healthcare Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  58,780  in Bajaj Healthcare Limited on December 28, 2024 and sell it today you would earn a total of  12,065  from holding Bajaj Healthcare Limited or generate 20.53% return on investment over 90 days.

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

Rainbow Childrens Medicare  vs.  Bajaj Healthcare Limited

Rainbow Childrens

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rainbow Childrens Medicare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Bajaj Healthcare

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Healthcare Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Bajaj Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rainbow Childrens and Bajaj Healthcare

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

The idea behind Rainbow Childrens Medicare and Bajaj Healthcare 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.