Correlation Between NIFTY SUMER and Kotak Mahindra

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

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

Diversification Opportunities for NIFTY SUMER and Kotak Mahindra

0.84

Correlation Coefficient

NIFTY SUMER  Kotak Mahindra

Very poor diversification

The 3 months correlation between NIFTY and Kotak is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and Kotak Mahindra Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kotak Mahindra Bank and NIFTY SUMER 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 NIFTY SUMER DURABLES are associated (or correlated) with Kotak Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kotak Mahindra Bank has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and Kotak Mahindra go up and down completely randomly.

Pair Corralation between NIFTY SUMER and Kotak Mahindra

Assuming the 90 days trading horizon NIFTY SUMER DURABLES is expected to generate 0.83 times more return on investment than Kotak Mahindra. However, NIFTY SUMER DURABLES is 1.2 times less risky than Kotak Mahindra. It trades about -0.02 of its potential returns per unit of risk. Kotak Mahindra Bank is currently generating about -0.06 per unit of risk. If you would invest  4,334,220  in NIFTY SUMER DURABLES on September 19, 2024 and sell it today you would lose (69,955) from holding NIFTY SUMER DURABLES or give up 1.61% of portfolio value over 90 days.

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

NIFTY SUMER DURABLES  vs.  Kotak Mahindra Bank

Pair Trading with NIFTY SUMER and Kotak Mahindra

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

The idea behind NIFTY SUMER DURABLES and Kotak Mahindra Bank 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.