Correlation Between Kotak Mahindra and Foods Inns

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

By analyzing existing cross correlation between Kotak Mahindra Bank and Foods Inns Limited, you can compare the effects of market volatilities on Kotak Mahindra and Foods Inns 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 Kotak Mahindra with a short position of Foods Inns. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kotak Mahindra and Foods Inns.

Diversification Opportunities for Kotak Mahindra and Foods Inns

0.7

Correlation Coefficient

Kotak Mahindra  Foods Inns

Poor diversification

The 3 months correlation between Kotak and Foods is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Kotak Mahindra Bank and Foods Inns Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foods Inns Limited and Kotak Mahindra 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 Kotak Mahindra Bank are associated (or correlated) with Foods Inns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foods Inns Limited has no effect on the direction of Kotak Mahindra i.e., Kotak Mahindra and Foods Inns go up and down completely randomly.

Pair Corralation between Kotak Mahindra and Foods Inns

Assuming the 90 days trading horizon Kotak Mahindra Bank is expected to under-perform the Foods Inns. But the stock apears to be less risky and, when comparing its historical volatility, Kotak Mahindra Bank is 2.87 times less risky than Foods Inns. The stock trades about -0.12 of its potential returns per unit of risk. The Foods Inns Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  13,516  in Foods Inns Limited on September 21, 2024 and sell it today you would lose (1,601) from holding Foods Inns Limited or give up 11.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Kotak Mahindra Bank  vs.  Foods Inns Limited

Kotak Mahindra Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kotak Mahindra Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Foods Inns Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foods Inns Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Kotak Mahindra and Foods Inns

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

The idea behind Kotak Mahindra Bank and Foods Inns 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.