Correlation Between Indo Borax and Kothari Petrochemicals

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

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

Diversification Opportunities for Indo Borax and Kothari Petrochemicals

0.7

Correlation Coefficient

Indo Borax  Kothari Petrochemicals

Poor diversification

The 3 months correlation between Indo and Kothari is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Indo Borax Chemicals and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals and Indo Borax 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 Indo Borax Chemicals 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 Indo Borax i.e., Indo Borax and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between Indo Borax and Kothari Petrochemicals

Assuming the 90 days trading horizon Indo Borax Chemicals is expected to under-perform the Kothari Petrochemicals. In addition to that, Indo Borax is 1.1 times more volatile than Kothari Petrochemicals Limited. It trades about -0.06 of its total potential returns per unit of risk. Kothari Petrochemicals Limited is currently generating about -0.02 per unit of volatility. If you would invest  21,781  in Kothari Petrochemicals Limited on September 19, 2024 and sell it today you would lose (1,455) from holding Kothari Petrochemicals Limited or give up 6.68% of portfolio value over 90 days.

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

Indo Borax Chemicals  vs.  Kothari Petrochemicals Limited

Indo Borax Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indo Borax Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail 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 Indo Borax and Kothari Petrochemicals

The main advantage of trading using opposite Indo Borax and Kothari Petrochemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indo Borax 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 Indo Borax Chemicals 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.