Correlation Between Taj GVK and CEAT

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

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

Diversification Opportunities for Taj GVK and CEAT

0.65

Correlation Coefficient

Taj GVK  CEAT

Poor diversification

The 3 months correlation between Taj and CEAT is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Taj GVK Hotels and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and Taj GVK 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 Taj GVK Hotels 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 Taj GVK i.e., Taj GVK and CEAT go up and down completely randomly.

Pair Corralation between Taj GVK and CEAT

Assuming the 90 days trading horizon Taj GVK is expected to generate 48.47 times less return on investment than CEAT. But when comparing it to its historical volatility, Taj GVK Hotels is 38.8 times less risky than CEAT. It trades about 0.09 of its potential returns per unit of risk. CEAT Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  246,858  in CEAT Limited on October 7, 2024 and sell it today you would earn a total of  71,667  from holding CEAT Limited or generate 29.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.38%
Values	Daily Returns

Taj GVK Hotels  vs.  CEAT Limited

Taj GVK Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Taj GVK Hotels are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, Taj GVK sustained solid returns over the last few months and may actually be approaching a breakup point.

CEAT Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CEAT Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, CEAT may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Taj GVK and CEAT

The main advantage of trading using opposite Taj GVK and CEAT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taj GVK 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 Taj GVK Hotels 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.