Correlation Between Ravi Kumar and CEAT

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

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

Diversification Opportunities for Ravi Kumar and CEAT

0.77

Correlation Coefficient

Ravi Kumar  CEAT

Poor diversification

The 3 months correlation between Ravi and CEAT is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ravi Kumar Distilleries and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Ravi Kumar 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 Ravi Kumar Distilleries are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of Ravi Kumar i.e., Ravi Kumar and CEAT go up and down completely randomly.

Pair Corralation between Ravi Kumar and CEAT

Assuming the 90 days trading horizon Ravi Kumar is expected to generate 145.91 times less return on investment than CEAT. But when comparing it to its historical volatility, Ravi Kumar Distilleries is 52.89 times less risky than CEAT. It trades about 0.05 of its potential returns per unit of risk. CEAT Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  154,616  in CEAT Limited on October 22, 2024 and sell it today you would earn a total of  146,854  from holding CEAT Limited or generate 94.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.39%
Values	Daily Returns

Ravi Kumar Distilleries  vs.  CEAT Limited

Ravi Kumar Distilleries

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ravi Kumar Distilleries are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Ravi Kumar unveiled solid returns over the last few months and may actually be approaching a breakup point.

CEAT Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CEAT Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, CEAT is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ravi Kumar and CEAT

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

The idea behind Ravi Kumar Distilleries and CEAT 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.