Correlation Between Vedanta and Paramount Communications

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

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

Diversification Opportunities for Vedanta and Paramount Communications

0.56

Correlation Coefficient

Vedanta  Paramount Communications

Very weak diversification

The 3 months correlation between Vedanta and Paramount is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Vedanta Limited and Paramount Communications Limit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Communications and Vedanta 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 Vedanta Limited are associated (or correlated) with Paramount Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Communications has no effect on the direction of Vedanta i.e., Vedanta and Paramount Communications go up and down completely randomly.

Pair Corralation between Vedanta and Paramount Communications

Assuming the 90 days trading horizon Vedanta Limited is expected to under-perform the Paramount Communications. But the stock apears to be less risky and, when comparing its historical volatility, Vedanta Limited is 1.46 times less risky than Paramount Communications. The stock trades about -0.06 of its potential returns per unit of risk. The Paramount Communications Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,582  in Paramount Communications Limited on October 6, 2024 and sell it today you would earn a total of  968.00  from holding Paramount Communications Limited or generate 12.77% return on investment over 90 days.

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

Vedanta Limited  vs.  Paramount Communications Limit

Vedanta Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vedanta Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vedanta is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Paramount Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Communications Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Paramount Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vedanta and Paramount Communications

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

The idea behind Vedanta Limited and Paramount Communications 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.