Correlation Between Tarapur Transformers and HDFC Asset

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

Diversification Opportunities for Tarapur Transformers and HDFC Asset

0.06

Correlation Coefficient

Tarapur Transformers  HDFC Asset

Significant diversification

The 3 months correlation between Tarapur and HDFC is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Tarapur Transformers Limited and HDFC Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Asset Management 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 HDFC Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Asset Management has no effect on the direction of Tarapur Transformers i.e., Tarapur Transformers and HDFC Asset go up and down completely randomly.

Pair Corralation between Tarapur Transformers and HDFC Asset

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 1.97 times more return on investment than HDFC Asset. However, Tarapur Transformers is 1.97 times more volatile than HDFC Asset Management. It trades about 0.72 of its potential returns per unit of risk. HDFC Asset Management is currently generating about -0.09 per unit of risk. If you would invest  2,999  in Tarapur Transformers Limited on September 25, 2024 and sell it today you would earn a total of  1,459  from holding Tarapur Transformers Limited or generate 48.65% return on investment over 90 days.

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

Tarapur Transformers Limited  vs.  HDFC Asset Management

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 weak basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

HDFC Asset Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, HDFC Asset is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tarapur Transformers and HDFC Asset

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

The idea behind Tarapur Transformers Limited and HDFC Asset Management 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.