Correlation Between Tarapur Transformers and Indian Hotels

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

Diversification Opportunities for Tarapur Transformers and Indian Hotels

0.84

Correlation Coefficient

Tarapur Transformers  Indian Hotels

Very poor diversification

The 3 months correlation between Tarapur and Indian is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Tarapur Transformers Limited and The Indian Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian 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 Indian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Hotels has no effect on the direction of Tarapur Transformers i.e., Tarapur Transformers and Indian Hotels go up and down completely randomly.

Pair Corralation between Tarapur Transformers and Indian Hotels

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 2.34 times more return on investment than Indian Hotels. However, Tarapur Transformers is 2.34 times more volatile than The Indian Hotels. It trades about 0.69 of its potential returns per unit of risk. The Indian Hotels is currently generating about 0.27 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 Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Tarapur Transformers Limited  vs.  The Indian 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.

Indian Hotels

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Indian Hotels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Indian Hotels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tarapur Transformers and Indian Hotels

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

The idea behind Tarapur Transformers Limited and The Indian 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.