Correlation Between Kothari Petrochemicals and Avonmore Capital

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

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

Diversification Opportunities for Kothari Petrochemicals and Avonmore Capital

0.19

Correlation Coefficient

Kothari Petrochemicals  Avonmore Capital

Average diversification

The 3 months correlation between Kothari and Avonmore is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Kothari Petrochemicals Limited and Avonmore Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avonmore Capital Man and Kothari Petrochemicals 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 Kothari Petrochemicals Limited are associated (or correlated) with Avonmore Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avonmore Capital Man has no effect on the direction of Kothari Petrochemicals i.e., Kothari Petrochemicals and Avonmore Capital go up and down completely randomly.

Pair Corralation between Kothari Petrochemicals and Avonmore Capital

Assuming the 90 days trading horizon Kothari Petrochemicals is expected to generate 3.21 times less return on investment than Avonmore Capital. But when comparing it to its historical volatility, Kothari Petrochemicals Limited is 2.05 times less risky than Avonmore Capital. It trades about 0.11 of its potential returns per unit of risk. Avonmore Capital Management is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,387  in Avonmore Capital Management on September 21, 2024 and sell it today you would earn a total of  202.00  from holding Avonmore Capital Management or generate 14.56% return on investment over 90 days.

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

Kothari Petrochemicals Limited  vs.  Avonmore Capital Management

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 conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Avonmore Capital Man

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avonmore Capital Management has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Avonmore Capital is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Kothari Petrochemicals and Avonmore Capital

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

The idea behind Kothari Petrochemicals Limited and Avonmore Capital Management 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.