Correlation Between Action Construction and KIOCL

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

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

Diversification Opportunities for Action Construction and KIOCL

0.6

Correlation Coefficient

Action Construction  KIOCL

Poor diversification

The 3 months correlation between Action and KIOCL is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment and KIOCL Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KIOCL Limited and Action Construction 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 Action Construction Equipment are associated (or correlated) with KIOCL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KIOCL Limited has no effect on the direction of Action Construction i.e., Action Construction and KIOCL go up and down completely randomly.

Pair Corralation between Action Construction and KIOCL

Assuming the 90 days trading horizon Action Construction Equipment is expected to generate 1.1 times more return on investment than KIOCL. However, Action Construction is 1.1 times more volatile than KIOCL Limited. It trades about 0.39 of its potential returns per unit of risk. KIOCL Limited is currently generating about 0.12 per unit of risk. If you would invest  122,515  in Action Construction Equipment on September 23, 2024 and sell it today you would earn a total of  26,625  from holding Action Construction Equipment or generate 21.73% return on investment over 90 days.

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

Action Construction Equipment  vs.  KIOCL Limited

Action Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Action Construction is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

KIOCL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KIOCL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, KIOCL is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Action Construction and KIOCL

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

The idea behind Action Construction Equipment and KIOCL 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.