Correlation Between Sapphire Foods and Servotech Power

Can any of the company-specific risk be diversified away by investing in both Sapphire Foods 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 Sapphire Foods and Servotech Power 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 Servotech Power Systems, you can compare the effects of market volatilities on Sapphire Foods 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 Sapphire Foods with a short position of Servotech Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sapphire Foods and Servotech Power.

Diversification Opportunities for Sapphire Foods and Servotech Power

-0.08

Correlation Coefficient

Sapphire Foods  Servotech Power

Good diversification

The 3 months correlation between Sapphire and Servotech is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Sapphire Foods India 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 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 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 Sapphire Foods i.e., Sapphire Foods and Servotech Power go up and down completely randomly.

Pair Corralation between Sapphire Foods and Servotech Power

Assuming the 90 days trading horizon Sapphire Foods India is expected to under-perform the Servotech Power. But the stock apears to be less risky and, when comparing its historical volatility, Sapphire Foods India is 1.29 times less risky than Servotech Power. The stock trades about -0.08 of its potential returns per unit of risk. The Servotech Power Systems is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  16,817  in Servotech Power Systems on October 26, 2024 and sell it today you would lose (1,710) from holding Servotech Power Systems or give up 10.17% of portfolio value over 90 days.

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

Sapphire Foods India  vs.  Servotech Power Systems

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 latest unsteady performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail 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 weak 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 Sapphire Foods and Servotech Power

The main advantage of trading using opposite Sapphire Foods and Servotech Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sapphire Foods 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 Sapphire Foods India 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.