Correlation Between Action Construction and Muthoot Finance

Can any of the company-specific risk be diversified away by investing in both Action Construction and Muthoot Finance 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 Muthoot Finance 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 Muthoot Finance Limited, you can compare the effects of market volatilities on Action Construction and Muthoot Finance 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 Muthoot Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Action Construction and Muthoot Finance.

Diversification Opportunities for Action Construction and Muthoot Finance

-0.36

Correlation Coefficient

Action Construction  Muthoot Finance

Very good diversification

The 3 months correlation between Action and Muthoot is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment and Muthoot Finance Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Muthoot Finance 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 Muthoot Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Muthoot Finance has no effect on the direction of Action Construction i.e., Action Construction and Muthoot Finance go up and down completely randomly.

Pair Corralation between Action Construction and Muthoot Finance

Assuming the 90 days trading horizon Action Construction Equipment is expected to under-perform the Muthoot Finance. In addition to that, Action Construction is 1.51 times more volatile than Muthoot Finance Limited. It trades about -0.08 of its total potential returns per unit of risk. Muthoot Finance Limited is currently generating about 0.12 per unit of volatility. If you would invest  206,250  in Muthoot Finance Limited on December 26, 2024 and sell it today you would earn a total of  28,295  from holding Muthoot Finance Limited or generate 13.72% return on investment over 90 days.

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

Action Construction Equipment  vs.  Muthoot Finance Limited

Action Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Action Construction Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Muthoot Finance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Muthoot Finance Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, Muthoot Finance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Action Construction and Muthoot Finance

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

The idea behind Action Construction Equipment and Muthoot Finance 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 Transaction History module to view history of all your transactions and understand their impact on performance.