Correlation Between Wipro and Persistent Systems

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

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

Diversification Opportunities for Wipro and Persistent Systems

0.77

Correlation Coefficient

Wipro  Persistent Systems

Poor diversification

The 3 months correlation between Wipro and Persistent is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Wipro Limited and Persistent Systems Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Persistent Systems and Wipro 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 Wipro Limited are associated (or correlated) with Persistent Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Persistent Systems has no effect on the direction of Wipro i.e., Wipro and Persistent Systems go up and down completely randomly.

Pair Corralation between Wipro and Persistent Systems

Assuming the 90 days trading horizon Wipro is expected to generate 1.62 times less return on investment than Persistent Systems. But when comparing it to its historical volatility, Wipro Limited is 1.37 times less risky than Persistent Systems. It trades about 0.09 of its potential returns per unit of risk. Persistent Systems Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  519,200  in Persistent Systems Limited on August 31, 2024 and sell it today you would earn a total of  71,365  from holding Persistent Systems Limited or generate 13.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Wipro Limited  vs.  Persistent Systems Limited

Wipro Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wipro Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Wipro may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Persistent Systems

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Persistent Systems Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Persistent Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wipro and Persistent Systems

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

The idea behind Wipro Limited and Persistent Systems 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.