Correlation Between Tarapur Transformers and Cholamandalam Investment

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

Diversification Opportunities for Tarapur Transformers and Cholamandalam Investment

-0.38

Correlation Coefficient

Tarapur Transformers  Cholamandalam Investment

Very good diversification

The 3 months correlation between Tarapur and Cholamandalam is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Tarapur Transformers Limited and Cholamandalam Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cholamandalam Investment 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 Cholamandalam Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cholamandalam Investment has no effect on the direction of Tarapur Transformers i.e., Tarapur Transformers and Cholamandalam Investment go up and down completely randomly.

Pair Corralation between Tarapur Transformers and Cholamandalam Investment

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 1.13 times more return on investment than Cholamandalam Investment. However, Tarapur Transformers is 1.13 times more volatile than Cholamandalam Investment and. It trades about 0.23 of its potential returns per unit of risk. Cholamandalam Investment and is currently generating about -0.07 per unit of risk. If you would invest  2,963  in Tarapur Transformers Limited on October 23, 2024 and sell it today you would earn a total of  1,226  from holding Tarapur Transformers Limited or generate 41.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Tarapur Transformers Limited  vs.  Cholamandalam Investment and

Tarapur Transformers

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

Cholamandalam Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting 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 Tarapur Transformers and Cholamandalam Investment

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

The idea behind Tarapur Transformers Limited and Cholamandalam Investment and 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.