Correlation Between Bajaj Finance and V-Mart Retail

Can any of the company-specific risk be diversified away by investing in both Bajaj Finance and V-Mart Retail 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 Bajaj Finance and V-Mart Retail into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bajaj Finance Limited and V Mart Retail Limited, you can compare the effects of market volatilities on Bajaj Finance and V-Mart Retail 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 Bajaj Finance with a short position of V-Mart Retail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bajaj Finance and V-Mart Retail.

Diversification Opportunities for Bajaj Finance and V-Mart Retail

0.04

Correlation Coefficient

Bajaj Finance  V-Mart Retail

Significant diversification

The 3 months correlation between Bajaj and V-Mart is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bajaj Finance Limited and V Mart Retail Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on V Mart Retail and Bajaj Finance 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 Bajaj Finance Limited are associated (or correlated) with V-Mart Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of V Mart Retail has no effect on the direction of Bajaj Finance i.e., Bajaj Finance and V-Mart Retail go up and down completely randomly.

Pair Corralation between Bajaj Finance and V-Mart Retail

Assuming the 90 days trading horizon Bajaj Finance Limited is expected to generate 0.78 times more return on investment than V-Mart Retail. However, Bajaj Finance Limited is 1.29 times less risky than V-Mart Retail. It trades about -0.16 of its potential returns per unit of risk. V Mart Retail Limited is currently generating about -0.18 per unit of risk. If you would invest  730,200  in Bajaj Finance Limited on August 12, 2024 and sell it today you would lose (40,605) from holding Bajaj Finance Limited or give up 5.56% of portfolio value over 90 days.

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

Bajaj Finance Limited  vs.  V Mart Retail Limited

Bajaj Finance Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Finance Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bajaj Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

V Mart Retail

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Bajaj Finance and V-Mart Retail

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

The idea behind Bajaj Finance Limited and V Mart Retail 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.