Correlation Between REC and Bajaj Finance

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

Diversification Opportunities for REC and Bajaj Finance

0.43
  Correlation Coefficient
 REC

Very weak diversification

The 3 months correlation between REC and Bajaj is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding REC Limited and Bajaj Finance Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Finance Limited and REC 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 REC Limited are associated (or correlated) with Bajaj Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bajaj Finance Limited has no effect on the direction of REC i.e., REC and Bajaj Finance go up and down completely randomly.

Pair Corralation between REC and Bajaj Finance

Assuming the 90 days trading horizon REC Limited is expected to generate 1.46 times more return on investment than Bajaj Finance. However, REC is 1.46 times more volatile than Bajaj Finance Limited. It trades about 0.04 of its potential returns per unit of risk. Bajaj Finance Limited is currently generating about -0.16 per unit of risk. If you would invest  52,680  in REC Limited on September 2, 2024 and sell it today you would earn a total of  580.00  from holding REC Limited or generate 1.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.24%
ValuesDaily Returns

REC Limited  vs.  Bajaj Finance Limited

 Performance 
       Timeline  
REC Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days REC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
Bajaj Finance Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Bajaj Finance Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

REC and Bajaj Finance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with REC and Bajaj Finance

The main advantage of trading using opposite REC and Bajaj Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if REC position performs unexpectedly, Bajaj Finance 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 Bajaj Finance will offset losses from the drop in Bajaj Finance's long position.
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The idea behind REC Limited and Bajaj Finance 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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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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