Correlation Between Refex Industries and KNR Constructions

Can any of the company-specific risk be diversified away by investing in both Refex Industries and KNR Constructions 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 Refex Industries and KNR Constructions into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Refex Industries Limited and KNR Constructions Limited, you can compare the effects of market volatilities on Refex Industries and KNR Constructions 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 Refex Industries with a short position of KNR Constructions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Refex Industries and KNR Constructions.

Diversification Opportunities for Refex Industries and KNR Constructions

0.02

Correlation Coefficient

Refex Industries  KNR Constructions

Significant diversification

The 3 months correlation between Refex and KNR is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Refex Industries Limited and KNR Constructions Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KNR Constructions and Refex Industries 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 Refex Industries Limited are associated (or correlated) with KNR Constructions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KNR Constructions has no effect on the direction of Refex Industries i.e., Refex Industries and KNR Constructions go up and down completely randomly.

Pair Corralation between Refex Industries and KNR Constructions

Assuming the 90 days trading horizon Refex Industries Limited is expected to generate 1.44 times more return on investment than KNR Constructions. However, Refex Industries is 1.44 times more volatile than KNR Constructions Limited. It trades about 0.13 of its potential returns per unit of risk. KNR Constructions Limited is currently generating about -0.02 per unit of risk. If you would invest  42,785  in Refex Industries Limited on September 12, 2024 and sell it today you would earn a total of  11,925  from holding Refex Industries Limited or generate 27.87% return on investment over 90 days.

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

Refex Industries Limited  vs.  KNR Constructions Limited

Refex Industries

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Refex Industries Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Refex Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

KNR Constructions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KNR Constructions Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, KNR Constructions is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Refex Industries and KNR Constructions

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

The idea behind Refex Industries Limited and KNR Constructions 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.