Correlation Between Zuari Agro and BF Utilities

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

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

Diversification Opportunities for Zuari Agro and BF Utilities

0.42

Correlation Coefficient

Zuari Agro  BF Utilities

Very weak diversification

The 3 months correlation between Zuari and BFUTILITIE is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Zuari Agro Chemicals and BF Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Utilities Limited and Zuari Agro 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 Zuari Agro Chemicals are associated (or correlated) with BF Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Utilities Limited has no effect on the direction of Zuari Agro i.e., Zuari Agro and BF Utilities go up and down completely randomly.

Pair Corralation between Zuari Agro and BF Utilities

Assuming the 90 days trading horizon Zuari Agro Chemicals is expected to generate 1.47 times more return on investment than BF Utilities. However, Zuari Agro is 1.47 times more volatile than BF Utilities Limited. It trades about 0.46 of its potential returns per unit of risk. BF Utilities Limited is currently generating about 0.34 per unit of risk. If you would invest  19,654  in Zuari Agro Chemicals on September 5, 2024 and sell it today you would earn a total of  6,065  from holding Zuari Agro Chemicals or generate 30.86% return on investment over 90 days.

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

Zuari Agro Chemicals  vs.  BF Utilities Limited

Zuari Agro Chemicals

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zuari Agro Chemicals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Zuari Agro displayed solid returns over the last few months and may actually be approaching a breakup point.

BF Utilities Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Utilities Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, BF Utilities demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zuari Agro and BF Utilities

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

The idea behind Zuari Agro Chemicals and BF Utilities 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.