Correlation Between Tarapur Transformers and Nahar Industrial

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

Diversification Opportunities for Tarapur Transformers and Nahar Industrial

0.32

Correlation Coefficient

Tarapur Transformers  Nahar Industrial

Weak diversification

The 3 months correlation between Tarapur and Nahar is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Tarapur Transformers Limited and Nahar Industrial Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nahar Industrial Ent 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 Nahar Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nahar Industrial Ent has no effect on the direction of Tarapur Transformers i.e., Tarapur Transformers and Nahar Industrial go up and down completely randomly.

Pair Corralation between Tarapur Transformers and Nahar Industrial

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 1.16 times more return on investment than Nahar Industrial. However, Tarapur Transformers is 1.16 times more volatile than Nahar Industrial Enterprises. It trades about 0.51 of its potential returns per unit of risk. Nahar Industrial Enterprises is currently generating about 0.02 per unit of risk. If you would invest  2,951  in Tarapur Transformers Limited on October 7, 2024 and sell it today you would earn a total of  1,938  from holding Tarapur Transformers Limited or generate 65.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Tarapur Transformers Limited  vs.  Nahar Industrial Enterprises

Tarapur Transformers

Risk-Adjusted Performance

46 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 46 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Tarapur Transformers reported solid returns over the last few months and may actually be approaching a breakup point.

Nahar Industrial Ent

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nahar Industrial Enterprises are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, Nahar Industrial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tarapur Transformers and Nahar Industrial

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

The idea behind Tarapur Transformers Limited and Nahar Industrial Enterprises 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.