Correlation Between Gujarat Narmada and Kothari Petrochemicals

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

By analyzing existing cross correlation between Gujarat Narmada Valley and Kothari Petrochemicals Limited, you can compare the effects of market volatilities on Gujarat Narmada and Kothari Petrochemicals 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 Gujarat Narmada with a short position of Kothari Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gujarat Narmada and Kothari Petrochemicals.

Diversification Opportunities for Gujarat Narmada and Kothari Petrochemicals

0.78

Correlation Coefficient

Gujarat Narmada  Kothari Petrochemicals

Poor diversification

The 3 months correlation between Gujarat and Kothari is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Narmada Valley and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals and Gujarat Narmada 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 Gujarat Narmada Valley are associated (or correlated) with Kothari Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kothari Petrochemicals has no effect on the direction of Gujarat Narmada i.e., Gujarat Narmada and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between Gujarat Narmada and Kothari Petrochemicals

Assuming the 90 days trading horizon Gujarat Narmada Valley is expected to under-perform the Kothari Petrochemicals. But the stock apears to be less risky and, when comparing its historical volatility, Gujarat Narmada Valley is 1.47 times less risky than Kothari Petrochemicals. The stock trades about -0.03 of its potential returns per unit of risk. The Kothari Petrochemicals Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  22,285  in Kothari Petrochemicals Limited on September 17, 2024 and sell it today you would lose (1,242) from holding Kothari Petrochemicals Limited or give up 5.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Gujarat Narmada Valley  vs.  Kothari Petrochemicals Limited

Gujarat Narmada Valley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gujarat Narmada Valley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gujarat Narmada is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Kothari Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kothari Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Kothari Petrochemicals is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Gujarat Narmada and Kothari Petrochemicals

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

The idea behind Gujarat Narmada Valley and Kothari Petrochemicals 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.