Correlation Between Spencers Retail and Bharat Forge

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

Diversification Opportunities for Spencers Retail and Bharat Forge

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Spencers and Bharat is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Spencers Retail Limited and Bharat Forge Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bharat Forge Limited and Spencers Retail 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 Spencers Retail Limited are associated (or correlated) with Bharat Forge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bharat Forge Limited has no effect on the direction of Spencers Retail i.e., Spencers Retail and Bharat Forge go up and down completely randomly.

Pair Corralation between Spencers Retail and Bharat Forge

Assuming the 90 days trading horizon Spencers Retail Limited is expected to generate 1.44 times more return on investment than Bharat Forge. However, Spencers Retail is 1.44 times more volatile than Bharat Forge Limited. It trades about -0.08 of its potential returns per unit of risk. Bharat Forge Limited is currently generating about -0.16 per unit of risk. If you would invest  9,193  in Spencers Retail Limited on September 5, 2024 and sell it today you would lose (391.00) from holding Spencers Retail Limited or give up 4.25% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

Spencers Retail Limited  vs.  Bharat Forge Limited

 Performance 
       Timeline  
Spencers Retail 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Spencers Retail Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.
Bharat Forge Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Bharat Forge Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Spencers Retail and Bharat Forge Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Spencers Retail and Bharat Forge

The main advantage of trading using opposite Spencers Retail and Bharat Forge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spencers Retail position performs unexpectedly, Bharat Forge 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 Bharat Forge will offset losses from the drop in Bharat Forge's long position.
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The idea behind Spencers Retail Limited and Bharat Forge 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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