Correlation Between Thermax and Suzlon Energy

Can any of the company-specific risk be diversified away by investing in both Thermax and Suzlon Energy 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 Thermax and Suzlon Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Thermax Limited and Suzlon Energy Limited, you can compare the effects of market volatilities on Thermax and Suzlon Energy 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 Thermax with a short position of Suzlon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thermax and Suzlon Energy.

Diversification Opportunities for Thermax and Suzlon Energy

0.3

Correlation Coefficient

Thermax  Suzlon Energy

Weak diversification

The 3 months correlation between Thermax and Suzlon is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Thermax Limited and Suzlon Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzlon Energy Limited and Thermax 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 Thermax Limited are associated (or correlated) with Suzlon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzlon Energy Limited has no effect on the direction of Thermax i.e., Thermax and Suzlon Energy go up and down completely randomly.

Pair Corralation between Thermax and Suzlon Energy

Assuming the 90 days trading horizon Thermax Limited is expected to generate 0.74 times more return on investment than Suzlon Energy. However, Thermax Limited is 1.35 times less risky than Suzlon Energy. It trades about -0.03 of its potential returns per unit of risk. Suzlon Energy Limited is currently generating about -0.06 per unit of risk. If you would invest  510,005  in Thermax Limited on September 17, 2024 and sell it today you would lose (19,520) from holding Thermax Limited or give up 3.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.67%
Values	Daily Returns

Thermax Limited  vs.  Suzlon Energy Limited

Thermax Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thermax Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Thermax is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Suzlon Energy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Suzlon Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Thermax and Suzlon Energy

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

The idea behind Thermax Limited and Suzlon Energy 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.