Correlation Between Tarapur Transformers and Blue Coast

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

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

Diversification Opportunities for Tarapur Transformers and Blue Coast

-0.07

Correlation Coefficient

Tarapur Transformers  Blue Coast

Good diversification

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

Pair Corralation between Tarapur Transformers and Blue Coast

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 0.94 times more return on investment than Blue Coast. However, Tarapur Transformers Limited is 1.06 times less risky than Blue Coast. It trades about 0.69 of its potential returns per unit of risk. Blue Coast Hotels is currently generating about 0.37 per unit of risk. If you would invest  3,061  in Tarapur Transformers Limited on September 23, 2024 and sell it today you would earn a total of  1,488  from holding Tarapur Transformers Limited or generate 48.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Tarapur Transformers Limited  vs.  Blue Coast Hotels

Tarapur Transformers

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

Blue Coast Hotels

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Coast Hotels are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Blue Coast sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tarapur Transformers and Blue Coast

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

The idea behind Tarapur Transformers Limited and Blue Coast Hotels 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.