Correlation Between CEAT and Intellect Design

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

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

Diversification Opportunities for CEAT and Intellect Design

0.69

Correlation Coefficient

CEAT  Intellect Design

Poor diversification

The 3 months correlation between CEAT and Intellect is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding CEAT Limited and Intellect Design Arena in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intellect Design Arena and CEAT 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 CEAT Limited are associated (or correlated) with Intellect Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intellect Design Arena has no effect on the direction of CEAT i.e., CEAT and Intellect Design go up and down completely randomly.

Pair Corralation between CEAT and Intellect Design

Assuming the 90 days trading horizon CEAT is expected to generate 2.97 times less return on investment than Intellect Design. But when comparing it to its historical volatility, CEAT Limited is 1.17 times less risky than Intellect Design. It trades about 0.1 of its potential returns per unit of risk. Intellect Design Arena is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  80,675  in Intellect Design Arena on April 24, 2025 and sell it today you would earn a total of  36,925  from holding Intellect Design Arena or generate 45.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

CEAT Limited  vs.  Intellect Design Arena

CEAT Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CEAT Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, CEAT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Intellect Design Arena

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Intellect Design Arena are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Intellect Design exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CEAT and Intellect Design

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

The idea behind CEAT Limited and Intellect Design Arena 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.