Correlation Between State Trading and Bajaj Healthcare

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

By analyzing existing cross correlation between The State Trading and Bajaj Healthcare Limited, you can compare the effects of market volatilities on State Trading and Bajaj Healthcare 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 State Trading with a short position of Bajaj Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Trading and Bajaj Healthcare.

Diversification Opportunities for State Trading and Bajaj Healthcare

0.07

Correlation Coefficient

State Trading  Bajaj Healthcare

Significant diversification

The 3 months correlation between State and Bajaj is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding The State Trading and Bajaj Healthcare Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Healthcare and State Trading 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 The State Trading are associated (or correlated) with Bajaj Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bajaj Healthcare has no effect on the direction of State Trading i.e., State Trading and Bajaj Healthcare go up and down completely randomly.

Pair Corralation between State Trading and Bajaj Healthcare

Assuming the 90 days trading horizon State Trading is expected to generate 5.56 times less return on investment than Bajaj Healthcare. But when comparing it to its historical volatility, The State Trading is 1.23 times less risky than Bajaj Healthcare. It trades about 0.05 of its potential returns per unit of risk. Bajaj Healthcare Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  35,715  in Bajaj Healthcare Limited on October 6, 2024 and sell it today you would earn a total of  27,545  from holding Bajaj Healthcare Limited or generate 77.12% return on investment over 90 days.

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

The State Trading  vs.  Bajaj Healthcare Limited

State Trading

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The State Trading are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, State Trading may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Bajaj Healthcare

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Healthcare Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Bajaj Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Trading and Bajaj Healthcare

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

The idea behind The State Trading and Bajaj Healthcare 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.