Correlation Between Tarapur Transformers and Taj GVK

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

Diversification Opportunities for Tarapur Transformers and Taj GVK

0.84

Correlation Coefficient

Tarapur Transformers  Taj GVK

Very poor diversification

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

Pair Corralation between Tarapur Transformers and Taj GVK

Assuming the 90 days trading horizon Tarapur Transformers Limited is expected to generate 1.1 times more return on investment than Taj GVK. However, Tarapur Transformers is 1.1 times more volatile than Taj GVK Hotels. It trades about 0.64 of its potential returns per unit of risk. Taj GVK Hotels is currently generating about 0.09 per unit of risk. If you would invest  2,999  in Tarapur Transformers Limited on September 26, 2024 and sell it today you would earn a total of  1,369  from holding Tarapur Transformers Limited or generate 45.65% 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.  Taj GVK Hotels

Tarapur Transformers

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 36 (%) 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.

Taj GVK Hotels

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taj GVK Hotels are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting technical and fundamental indicators, Taj GVK sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tarapur Transformers and Taj GVK

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

The idea behind Tarapur Transformers Limited and Taj GVK 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.