Correlation Between Servotech Power and Unitech

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

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

Diversification Opportunities for Servotech Power and Unitech

0.57

Correlation Coefficient

Servotech Power  Unitech

Very weak diversification

The 3 months correlation between Servotech and Unitech is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Servotech Power Systems and Unitech Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unitech Limited and Servotech Power 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 Servotech Power Systems are associated (or correlated) with Unitech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unitech Limited has no effect on the direction of Servotech Power i.e., Servotech Power and Unitech go up and down completely randomly.

Pair Corralation between Servotech Power and Unitech

Assuming the 90 days trading horizon Servotech Power Systems is expected to generate 1.18 times more return on investment than Unitech. However, Servotech Power is 1.18 times more volatile than Unitech Limited. It trades about 0.11 of its potential returns per unit of risk. Unitech Limited is currently generating about 0.12 per unit of risk. If you would invest  3,157  in Servotech Power Systems on September 20, 2024 and sell it today you would earn a total of  13,741  from holding Servotech Power Systems or generate 435.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.59%
Values	Daily Returns

Servotech Power Systems  vs.  Unitech Limited

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 rather sound technical and fundamental indicators, Servotech Power is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Unitech Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unitech Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Servotech Power and Unitech

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

The idea behind Servotech Power Systems and Unitech 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.