Correlation Between RITES and Paramount Communications

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

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

Diversification Opportunities for RITES and Paramount Communications

0.93

Correlation Coefficient

RITES  Paramount Communications

Almost no diversification

The 3 months correlation between RITES and Paramount is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding RITES Limited and Paramount Communications Limit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Communications and RITES 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 RITES Limited are associated (or correlated) with Paramount Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Communications has no effect on the direction of RITES i.e., RITES and Paramount Communications go up and down completely randomly.

Pair Corralation between RITES and Paramount Communications

Assuming the 90 days trading horizon RITES is expected to generate 1.33 times less return on investment than Paramount Communications. But when comparing it to its historical volatility, RITES Limited is 1.11 times less risky than Paramount Communications. It trades about 0.07 of its potential returns per unit of risk. Paramount Communications Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,880  in Paramount Communications Limited on September 15, 2024 and sell it today you would earn a total of  5,122  from holding Paramount Communications Limited or generate 177.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.98%
Values	Daily Returns

RITES Limited  vs.  Paramount Communications Limit

RITES Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RITES Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Paramount Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential 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.

Pair Trading with RITES and Paramount Communications

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

The idea behind RITES Limited and Paramount Communications 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.