Correlation Between Som Distilleries and CEAT

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

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

Diversification Opportunities for Som Distilleries and CEAT

0.7

Correlation Coefficient

Som Distilleries  CEAT

Poor diversification

The 3 months correlation between Som and CEAT is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Som Distilleries Breweries and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Som Distilleries 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 Som Distilleries Breweries 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 Som Distilleries i.e., Som Distilleries and CEAT go up and down completely randomly.

Pair Corralation between Som Distilleries and CEAT

Assuming the 90 days trading horizon Som Distilleries is expected to generate 8.48 times less return on investment than CEAT. In addition to that, Som Distilleries is 1.06 times more volatile than CEAT Limited. It trades about 0.0 of its total potential returns per unit of risk. CEAT Limited is currently generating about 0.02 per unit of volatility. If you would invest  302,240  in CEAT Limited on October 9, 2024 and sell it today you would earn a total of  4,780  from holding CEAT Limited or generate 1.58% return on investment over 90 days.

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

Som Distilleries Breweries  vs.  CEAT Limited

Som Distilleries Bre

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Som Distilleries Breweries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Som Distilleries is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CEAT Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CEAT Limited are ranked lower than 1 (%) 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Som Distilleries and CEAT

The main advantage of trading using opposite Som Distilleries and CEAT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Som Distilleries 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 Som Distilleries Breweries 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.