Correlation Between Coffee Day and Prakash Steelage

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

By analyzing existing cross correlation between Coffee Day Enterprises and Prakash Steelage Limited, you can compare the effects of market volatilities on Coffee Day and Prakash Steelage 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 Coffee Day with a short position of Prakash Steelage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee Day and Prakash Steelage.

Diversification Opportunities for Coffee Day and Prakash Steelage

0.38

Correlation Coefficient

Coffee Day  Prakash Steelage

Weak diversification

The 3 months correlation between Coffee and Prakash is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Day Enterprises and Prakash Steelage Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prakash Steelage and Coffee Day 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 Coffee Day Enterprises are associated (or correlated) with Prakash Steelage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prakash Steelage has no effect on the direction of Coffee Day i.e., Coffee Day and Prakash Steelage go up and down completely randomly.

Pair Corralation between Coffee Day and Prakash Steelage

Assuming the 90 days trading horizon Coffee Day Enterprises is expected to under-perform the Prakash Steelage. But the stock apears to be less risky and, when comparing its historical volatility, Coffee Day Enterprises is 1.13 times less risky than Prakash Steelage. The stock trades about -0.32 of its potential returns per unit of risk. The Prakash Steelage Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  881.00  in Prakash Steelage Limited on September 25, 2024 and sell it today you would lose (77.00) from holding Prakash Steelage Limited or give up 8.74% of portfolio value over 90 days.

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

Coffee Day Enterprises  vs.  Prakash Steelage Limited

Coffee Day Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coffee Day Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Prakash Steelage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prakash Steelage 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 recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Coffee Day and Prakash Steelage

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

The idea behind Coffee Day Enterprises and Prakash Steelage 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.