Correlation Between Sapphire Foods and Bajaj Healthcare

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

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

Diversification Opportunities for Sapphire Foods and Bajaj Healthcare

-0.26

Correlation Coefficient

Sapphire Foods  Bajaj Healthcare

Very good diversification

The 3 months correlation between Sapphire and Bajaj is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Sapphire Foods India and Bajaj Healthcare Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Healthcare and Sapphire Foods 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 Sapphire Foods India 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 Sapphire Foods i.e., Sapphire Foods and Bajaj Healthcare go up and down completely randomly.

Pair Corralation between Sapphire Foods and Bajaj Healthcare

Assuming the 90 days trading horizon Sapphire Foods India is expected to generate 6.6 times more return on investment than Bajaj Healthcare. However, Sapphire Foods is 6.6 times more volatile than Bajaj Healthcare Limited. It trades about 0.04 of its potential returns per unit of risk. Bajaj Healthcare Limited is currently generating about 0.07 per unit of risk. If you would invest  27,781  in Sapphire Foods India on October 4, 2024 and sell it today you would earn a total of  5,169  from holding Sapphire Foods India or generate 18.61% return on investment over 90 days.

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

Sapphire Foods India  vs.  Bajaj Healthcare Limited

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Sapphire Foods is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Bajaj Healthcare

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Healthcare Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Bajaj Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sapphire Foods and Bajaj Healthcare

The main advantage of trading using opposite Sapphire Foods and Bajaj Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sapphire Foods 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 Sapphire Foods India 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.