Correlation Between Tarapur Transformers and Wonder Electricals

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

Diversification Opportunities for Tarapur Transformers and Wonder Electricals

0.41

Correlation Coefficient

Tarapur Transformers  Wonder Electricals

Very weak diversification

The 3 months correlation between Tarapur and Wonder is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Tarapur Transformers Limited and Wonder Electricals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wonder Electricals 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 Wonder Electricals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wonder Electricals has no effect on the direction of Tarapur Transformers i.e., Tarapur Transformers and Wonder Electricals go up and down completely randomly.

Pair Corralation between Tarapur Transformers and Wonder Electricals

Assuming the 90 days trading horizon Tarapur Transformers is expected to generate 6.19 times less return on investment than Wonder Electricals. But when comparing it to its historical volatility, Tarapur Transformers Limited is 28.39 times less risky than Wonder Electricals. It trades about 0.33 of its potential returns per unit of risk. Wonder Electricals Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11,217  in Wonder Electricals Limited on September 27, 2024 and sell it today you would earn a total of  4,992  from holding Wonder Electricals Limited or generate 44.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.8%
Values	Daily Returns

Tarapur Transformers Limited  vs.  Wonder Electricals Limited

Tarapur Transformers

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tarapur Transformers Limited are ranked lower than 37 (%) 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.

Wonder Electricals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wonder Electricals Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Wonder Electricals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tarapur Transformers and Wonder Electricals

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

The idea behind Tarapur Transformers Limited and Wonder Electricals Limited 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.