Correlation Between Sapphire Foods and Zomato

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

Diversification Opportunities for Sapphire Foods and Zomato

0.27

Correlation Coefficient

Sapphire Foods  Zomato

Modest diversification

The 3 months correlation between Sapphire and Zomato is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Sapphire Foods India and Zomato Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zomato Limited 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 Zomato. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zomato Limited has no effect on the direction of Sapphire Foods i.e., Sapphire Foods and Zomato go up and down completely randomly.

Pair Corralation between Sapphire Foods and Zomato

Assuming the 90 days trading horizon Sapphire Foods India is expected to under-perform the Zomato. But the stock apears to be less risky and, when comparing its historical volatility, Sapphire Foods India is 1.11 times less risky than Zomato. The stock trades about -0.12 of its potential returns per unit of risk. The Zomato Limited is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  28,390  in Zomato Limited on September 26, 2024 and sell it today you would lose (905.00) from holding Zomato Limited or give up 3.19% of portfolio value over 90 days.

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

Sapphire Foods India  vs.  Zomato 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 weak performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Zomato Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zomato Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zomato is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sapphire Foods and Zomato

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

The idea behind Sapphire Foods India and Zomato 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.