Correlation Between Taj GVK and Varun Beverages

Can any of the company-specific risk be diversified away by investing in both Taj GVK and Varun Beverages 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 Varun Beverages 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 Varun Beverages Limited, you can compare the effects of market volatilities on Taj GVK and Varun Beverages 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 Varun Beverages. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taj GVK and Varun Beverages.

Diversification Opportunities for Taj GVK and Varun Beverages

0.74

Correlation Coefficient

Taj GVK  Varun Beverages

Poor diversification

The 3 months correlation between Taj and Varun is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Taj GVK Hotels and Varun Beverages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varun Beverages 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 Varun Beverages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varun Beverages has no effect on the direction of Taj GVK i.e., Taj GVK and Varun Beverages go up and down completely randomly.

Pair Corralation between Taj GVK and Varun Beverages

Assuming the 90 days trading horizon Taj GVK is expected to generate 6.64 times less return on investment than Varun Beverages. But when comparing it to its historical volatility, Taj GVK Hotels is 7.84 times less risky than Varun Beverages. It trades about 0.07 of its potential returns per unit of risk. Varun Beverages Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  22,439  in Varun Beverages Limited on October 4, 2024 and sell it today you would earn a total of  42,431  from holding Varun Beverages Limited or generate 189.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Taj GVK Hotels  vs.  Varun Beverages Limited

Taj GVK Hotels

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taj GVK Hotels are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady technical and fundamental indicators, Taj GVK sustained solid returns over the last few months and may actually be approaching a breakup point.

Varun Beverages

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Varun Beverages Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Varun Beverages exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taj GVK and Varun Beverages

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

The idea behind Taj GVK Hotels and Varun Beverages 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.