Correlation Between Jai Balaji and Kothari Petrochemicals

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

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

Diversification Opportunities for Jai Balaji and Kothari Petrochemicals

0.67

Correlation Coefficient

Jai Balaji  Kothari Petrochemicals

Poor diversification

The 3 months correlation between Jai and Kothari is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Jai Balaji Industries and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals and Jai Balaji 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 Jai Balaji Industries 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 Jai Balaji i.e., Jai Balaji and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between Jai Balaji and Kothari Petrochemicals

Assuming the 90 days trading horizon Jai Balaji Industries is expected to generate 0.98 times more return on investment than Kothari Petrochemicals. However, Jai Balaji Industries is 1.02 times less risky than Kothari Petrochemicals. It trades about 0.2 of its potential returns per unit of risk. Kothari Petrochemicals Limited is currently generating about 0.09 per unit of risk. If you would invest  5,555  in Jai Balaji Industries on October 4, 2024 and sell it today you would earn a total of  84,715  from holding Jai Balaji Industries or generate 1525.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.18%
Values	Daily Returns

Jai Balaji Industries  vs.  Kothari Petrochemicals Limited

Jai Balaji Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jai Balaji Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing 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 newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Jai Balaji and Kothari Petrochemicals

The main advantage of trading using opposite Jai Balaji and Kothari Petrochemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jai Balaji 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 Jai Balaji Industries 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.