Correlation Between Alkali Metals and Kothari Petrochemicals

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

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

Diversification Opportunities for Alkali Metals and Kothari Petrochemicals

0.67

Correlation Coefficient

Alkali Metals  Kothari Petrochemicals

Poor diversification

The 3 months correlation between Alkali and Kothari is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Alkali Metals Limited and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals and Alkali Metals 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 Alkali Metals Limited are associated (or correlated) with Kothari Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kothari Petrochemicals has no effect on the direction of Alkali Metals i.e., Alkali Metals and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between Alkali Metals and Kothari Petrochemicals

Assuming the 90 days trading horizon Alkali Metals is expected to generate 1.67 times less return on investment than Kothari Petrochemicals. But when comparing it to its historical volatility, Alkali Metals Limited is 1.33 times less risky than Kothari Petrochemicals. It trades about 0.17 of its potential returns per unit of risk. Kothari Petrochemicals Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  18,522  in Kothari Petrochemicals Limited on September 19, 2024 and sell it today you would earn a total of  1,804  from holding Kothari Petrochemicals Limited or generate 9.74% return on investment over 90 days.

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

Alkali Metals Limited  vs.  Kothari Petrochemicals Limited

Alkali Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Kothari Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kothari Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Kothari Petrochemicals is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Alkali Metals and Kothari Petrochemicals

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

The idea behind Alkali Metals Limited and Kothari Petrochemicals 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.