Correlation Between Gujarat Lease and Kotak Mahindra

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

By analyzing existing cross correlation between Gujarat Lease Financing and Kotak Mahindra Bank, you can compare the effects of market volatilities on Gujarat Lease and Kotak Mahindra 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 Gujarat Lease with a short position of Kotak Mahindra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gujarat Lease and Kotak Mahindra.

Diversification Opportunities for Gujarat Lease and Kotak Mahindra

0.23

Correlation Coefficient

Gujarat Lease  Kotak Mahindra

Modest diversification

The 3 months correlation between Gujarat and Kotak is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Lease Financing and Kotak Mahindra Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kotak Mahindra Bank and Gujarat Lease 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 Gujarat Lease Financing are associated (or correlated) with Kotak Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kotak Mahindra Bank has no effect on the direction of Gujarat Lease i.e., Gujarat Lease and Kotak Mahindra go up and down completely randomly.

Pair Corralation between Gujarat Lease and Kotak Mahindra

Assuming the 90 days trading horizon Gujarat Lease Financing is expected to under-perform the Kotak Mahindra. But the stock apears to be less risky and, when comparing its historical volatility, Gujarat Lease Financing is 1.12 times less risky than Kotak Mahindra. The stock trades about -0.56 of its potential returns per unit of risk. The Kotak Mahindra Bank is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  178,695  in Kotak Mahindra Bank on October 10, 2024 and sell it today you would lose (1,490) from holding Kotak Mahindra Bank or give up 0.83% of portfolio value over 90 days.

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

Gujarat Lease Financing  vs.  Kotak Mahindra Bank

Gujarat Lease Financing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gujarat Lease may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Kotak Mahindra Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gujarat Lease and Kotak Mahindra

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

The idea behind Gujarat Lease Financing and Kotak Mahindra Bank 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.