Correlation Between Kothari Petrochemicals and Dhanuka Agritech

Can any of the company-specific risk be diversified away by investing in both Kothari Petrochemicals and Dhanuka Agritech 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 Dhanuka Agritech 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 Dhanuka Agritech Limited, you can compare the effects of market volatilities on Kothari Petrochemicals and Dhanuka Agritech 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 Dhanuka Agritech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kothari Petrochemicals and Dhanuka Agritech.

Diversification Opportunities for Kothari Petrochemicals and Dhanuka Agritech

0.11

Correlation Coefficient

Kothari Petrochemicals  Dhanuka Agritech

Average diversification

The 3 months correlation between Kothari and Dhanuka is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Kothari Petrochemicals Limited and Dhanuka Agritech Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dhanuka Agritech 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 Dhanuka Agritech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dhanuka Agritech has no effect on the direction of Kothari Petrochemicals i.e., Kothari Petrochemicals and Dhanuka Agritech go up and down completely randomly.

Pair Corralation between Kothari Petrochemicals and Dhanuka Agritech

Assuming the 90 days trading horizon Kothari Petrochemicals Limited is expected to under-perform the Dhanuka Agritech. In addition to that, Kothari Petrochemicals is 1.35 times more volatile than Dhanuka Agritech Limited. It trades about -0.02 of its total potential returns per unit of risk. Dhanuka Agritech Limited is currently generating about 0.05 per unit of volatility. If you would invest  151,445  in Dhanuka Agritech Limited on September 19, 2024 and sell it today you would earn a total of  8,585  from holding Dhanuka Agritech Limited or generate 5.67% return on investment over 90 days.

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

Kothari Petrochemicals Limited  vs.  Dhanuka Agritech Limited

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 recent stock price confusion, may contribute to short-horizon losses for the traders.

Dhanuka Agritech

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dhanuka Agritech Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Dhanuka Agritech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Kothari Petrochemicals and Dhanuka Agritech

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

The idea behind Kothari Petrochemicals Limited and Dhanuka Agritech 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.