Correlation Between Bombay Burmah and Rajnandini Metal

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Can any of the company-specific risk be diversified away by investing in both Bombay Burmah and Rajnandini Metal 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 Bombay Burmah and Rajnandini Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bombay Burmah Trading and Rajnandini Metal Limited, you can compare the effects of market volatilities on Bombay Burmah and Rajnandini Metal 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 Bombay Burmah with a short position of Rajnandini Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bombay Burmah and Rajnandini Metal.

Diversification Opportunities for Bombay Burmah and Rajnandini Metal

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Bombay and Rajnandini is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Bombay Burmah Trading and Rajnandini Metal Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rajnandini Metal and Bombay Burmah 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 Bombay Burmah Trading are associated (or correlated) with Rajnandini Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rajnandini Metal has no effect on the direction of Bombay Burmah i.e., Bombay Burmah and Rajnandini Metal go up and down completely randomly.

Pair Corralation between Bombay Burmah and Rajnandini Metal

Assuming the 90 days trading horizon Bombay Burmah Trading is expected to under-perform the Rajnandini Metal. But the stock apears to be less risky and, when comparing its historical volatility, Bombay Burmah Trading is 1.12 times less risky than Rajnandini Metal. The stock trades about -0.23 of its potential returns per unit of risk. The Rajnandini Metal Limited is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Rajnandini Metal Limited on October 19, 2024 and sell it today you would lose (170.00) from holding Rajnandini Metal Limited or give up 17.26% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy98.39%
ValuesDaily Returns

Bombay Burmah Trading  vs.  Rajnandini Metal Limited

 Performance 
       Timeline  
Bombay Burmah Trading 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Bombay Burmah Trading has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
Rajnandini Metal 

Risk-Adjusted Performance

0 of 100

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

Bombay Burmah and Rajnandini Metal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bombay Burmah and Rajnandini Metal

The main advantage of trading using opposite Bombay Burmah and Rajnandini Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bombay Burmah position performs unexpectedly, Rajnandini Metal 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 Rajnandini Metal will offset losses from the drop in Rajnandini Metal's long position.
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The idea behind Bombay Burmah Trading and Rajnandini Metal 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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