Correlation Between BASF India and DCM Shriram

Can any of the company-specific risk be diversified away by investing in both BASF India and DCM Shriram 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 BASF India and DCM Shriram into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BASF India Limited and DCM Shriram Limited, you can compare the effects of market volatilities on BASF India and DCM Shriram 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 BASF India with a short position of DCM Shriram. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF India and DCM Shriram.

Diversification Opportunities for BASF India and DCM Shriram

0.48

Correlation Coefficient

BASF India  DCM Shriram

Very weak diversification

The 3 months correlation between BASF and DCM is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding BASF India Limited and DCM Shriram Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCM Shriram Limited and BASF India 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 BASF India Limited are associated (or correlated) with DCM Shriram. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCM Shriram Limited has no effect on the direction of BASF India i.e., BASF India and DCM Shriram go up and down completely randomly.

Pair Corralation between BASF India and DCM Shriram

Assuming the 90 days trading horizon BASF India is expected to generate 2.85 times less return on investment than DCM Shriram. But when comparing it to its historical volatility, BASF India Limited is 1.33 times less risky than DCM Shriram. It trades about 0.08 of its potential returns per unit of risk. DCM Shriram Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  106,680  in DCM Shriram Limited on April 24, 2025 and sell it today you would earn a total of  33,160  from holding DCM Shriram Limited or generate 31.08% return on investment over 90 days.

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

BASF India Limited  vs.  DCM Shriram Limited

BASF India Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BASF India Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BASF India may actually be approaching a critical reversion point that can send shares even higher in August 2025.

DCM Shriram Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DCM Shriram Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, DCM Shriram demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BASF India and DCM Shriram

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

The idea behind BASF India Limited and DCM Shriram 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.