Correlation Between Garuda Construction and Kothari Petrochemicals

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

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

Diversification Opportunities for Garuda Construction and Kothari Petrochemicals

0.63

Correlation Coefficient

Garuda Construction  Kothari Petrochemicals

Poor diversification

The 3 months correlation between Garuda and Kothari is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Garuda Construction Engineerin and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals and Garuda 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 Garuda Construction Engineering 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 Garuda Construction i.e., Garuda Construction and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between Garuda Construction and Kothari Petrochemicals

Assuming the 90 days trading horizon Garuda Construction Engineering is expected to generate 2.56 times more return on investment than Kothari Petrochemicals. However, Garuda Construction is 2.56 times more volatile than Kothari Petrochemicals Limited. It trades about 0.14 of its potential returns per unit of risk. Kothari Petrochemicals Limited is currently generating about 0.21 per unit of risk. If you would invest  8,254  in Garuda Construction Engineering on September 19, 2024 and sell it today you would earn a total of  1,231  from holding Garuda Construction Engineering or generate 14.91% return on investment over 90 days.

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

Garuda Construction Engineerin  vs.  Kothari Petrochemicals Limited

Garuda Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Garuda Construction Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 Garuda Construction and Kothari Petrochemicals

The main advantage of trading using opposite Garuda Construction and Kothari Petrochemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Garuda Construction 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 Garuda Construction Engineering 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.