Correlation Between Indus and K Electric

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

By analyzing existing cross correlation between Indus Motor and K Electric, you can compare the effects of market volatilities on Indus and K Electric 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 Indus with a short position of K Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indus and K Electric.

Diversification Opportunities for Indus and K Electric

0.86

Correlation Coefficient

Indus  K Electric

Very poor diversification

The 3 months correlation between Indus and KEL is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Indus Motor and K Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Electric and Indus 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 Indus Motor are associated (or correlated) with K Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Electric has no effect on the direction of Indus i.e., Indus and K Electric go up and down completely randomly.

Pair Corralation between Indus and K Electric

Assuming the 90 days trading horizon Indus Motor is expected to generate 0.32 times more return on investment than K Electric. However, Indus Motor is 3.14 times less risky than K Electric. It trades about 0.19 of its potential returns per unit of risk. K Electric is currently generating about 0.06 per unit of risk. If you would invest  114,464  in Indus Motor on September 2, 2024 and sell it today you would earn a total of  85,560  from holding Indus Motor or generate 74.75% return on investment over 90 days.

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

Indus Motor  vs.  K Electric

Indus Motor

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indus Motor are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Indus sustained solid returns over the last few months and may actually be approaching a breakup point.

K Electric

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in K Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, K Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Indus and K Electric

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

The idea behind Indus Motor and K Electric 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 Global Correlations module to find global opportunities by holding instruments from different markets.