Correlation Between SBI Life and Garuda Construction

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

By analyzing existing cross correlation between SBI Life Insurance and Garuda Construction Engineering, you can compare the effects of market volatilities on SBI Life and Garuda Construction 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 SBI Life with a short position of Garuda Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBI Life and Garuda Construction.

Diversification Opportunities for SBI Life and Garuda Construction

-0.41

Correlation Coefficient

SBI Life  Garuda Construction

Very good diversification

The 3 months correlation between SBI and Garuda is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding SBI Life Insurance and Garuda Construction Engineerin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Construction and SBI Life 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 SBI Life Insurance are associated (or correlated) with Garuda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Construction has no effect on the direction of SBI Life i.e., SBI Life and Garuda Construction go up and down completely randomly.

Pair Corralation between SBI Life and Garuda Construction

Assuming the 90 days trading horizon SBI Life Insurance is expected to under-perform the Garuda Construction. But the stock apears to be less risky and, when comparing its historical volatility, SBI Life Insurance is 3.2 times less risky than Garuda Construction. The stock trades about -0.1 of its potential returns per unit of risk. The Garuda Construction Engineering is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  8,958  in Garuda Construction Engineering on October 25, 2024 and sell it today you would earn a total of  4,402  from holding Garuda Construction Engineering or generate 49.14% return on investment over 90 days.

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

SBI Life Insurance  vs.  Garuda Construction Engineerin

SBI Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBI Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Garuda Construction

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Garuda Construction Engineering are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Garuda Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SBI Life and Garuda Construction

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

The idea behind SBI Life Insurance and Garuda Construction Engineering 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.