Correlation Between Rajnandini Metal and Servotech Power

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

By analyzing existing cross correlation between Rajnandini Metal Limited and Servotech Power Systems, you can compare the effects of market volatilities on Rajnandini Metal and Servotech Power 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 Rajnandini Metal with a short position of Servotech Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rajnandini Metal and Servotech Power.

Diversification Opportunities for Rajnandini Metal and Servotech Power

0.6

Correlation Coefficient

Rajnandini Metal  Servotech Power

Poor diversification

The 3 months correlation between Rajnandini and Servotech is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Rajnandini Metal Limited and Servotech Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Servotech Power Systems and Rajnandini Metal 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 Rajnandini Metal Limited are associated (or correlated) with Servotech Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Servotech Power Systems has no effect on the direction of Rajnandini Metal i.e., Rajnandini Metal and Servotech Power go up and down completely randomly.

Pair Corralation between Rajnandini Metal and Servotech Power

Assuming the 90 days trading horizon Rajnandini Metal Limited is expected to generate 1.73 times more return on investment than Servotech Power. However, Rajnandini Metal is 1.73 times more volatile than Servotech Power Systems. It trades about -0.02 of its potential returns per unit of risk. Servotech Power Systems is currently generating about -0.12 per unit of risk. If you would invest  912.00  in Rajnandini Metal Limited on September 22, 2024 and sell it today you would lose (20.00) from holding Rajnandini Metal Limited or give up 2.19% of portfolio value over 90 days.

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

Rajnandini Metal Limited  vs.  Servotech Power Systems

Rajnandini Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rajnandini Metal Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's primary indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Servotech Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Servotech Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Rajnandini Metal and Servotech Power

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

The idea behind Rajnandini Metal Limited and Servotech Power Systems 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.