Correlation Between Mcleod Russel and Roto Pumps

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

By analyzing existing cross correlation between Mcleod Russel India and Roto Pumps Limited, you can compare the effects of market volatilities on Mcleod Russel and Roto Pumps 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 Mcleod Russel with a short position of Roto Pumps. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mcleod Russel and Roto Pumps.

Diversification Opportunities for Mcleod Russel and Roto Pumps

0.62

Correlation Coefficient

Mcleod Russel  Roto Pumps

Poor diversification

The 3 months correlation between Mcleod and Roto is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Mcleod Russel India and Roto Pumps Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roto Pumps Limited and Mcleod Russel 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 Mcleod Russel India are associated (or correlated) with Roto Pumps. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roto Pumps Limited has no effect on the direction of Mcleod Russel i.e., Mcleod Russel and Roto Pumps go up and down completely randomly.

Pair Corralation between Mcleod Russel and Roto Pumps

Assuming the 90 days trading horizon Mcleod Russel India is expected to generate 1.13 times more return on investment than Roto Pumps. However, Mcleod Russel is 1.13 times more volatile than Roto Pumps Limited. It trades about 0.36 of its potential returns per unit of risk. Roto Pumps Limited is currently generating about 0.11 per unit of risk. If you would invest  2,784  in Mcleod Russel India on September 23, 2024 and sell it today you would earn a total of  1,972  from holding Mcleod Russel India or generate 70.83% return on investment over 90 days.

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

Mcleod Russel India  vs.  Roto Pumps Limited

Mcleod Russel India

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mcleod Russel India are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Mcleod Russel reported solid returns over the last few months and may actually be approaching a breakup point.

Roto Pumps Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Roto Pumps Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Roto Pumps may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mcleod Russel and Roto Pumps

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

The idea behind Mcleod Russel India and Roto Pumps 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.