Correlation Between Kothari Petrochemicals and Rail Vikas

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

Diversification Opportunities for Kothari Petrochemicals and Rail Vikas

0.81

Correlation Coefficient

Kothari Petrochemicals  Rail Vikas

Very poor diversification

The 3 months correlation between Kothari and Rail is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Kothari Petrochemicals Limited and Rail Vikas Nigam in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rail Vikas Nigam 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 Rail Vikas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rail Vikas Nigam has no effect on the direction of Kothari Petrochemicals i.e., Kothari Petrochemicals and Rail Vikas go up and down completely randomly.

Pair Corralation between Kothari Petrochemicals and Rail Vikas

Assuming the 90 days trading horizon Kothari Petrochemicals Limited is expected to generate 1.03 times more return on investment than Rail Vikas. However, Kothari Petrochemicals is 1.03 times more volatile than Rail Vikas Nigam. It trades about -0.02 of its potential returns per unit of risk. Rail Vikas Nigam is currently generating about -0.05 per unit of risk. 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	Strong
Accuracy	100.0%
Values	Daily Returns

Kothari Petrochemicals Limited  vs.  Rail Vikas Nigam

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.

Rail Vikas Nigam

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rail Vikas Nigam has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Kothari Petrochemicals and Rail Vikas

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

The idea behind Kothari Petrochemicals Limited and Rail Vikas Nigam 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.