Correlation Between KOT Addu and Adamjee Insurance

Can any of the company-specific risk be diversified away by investing in both KOT Addu and Adamjee Insurance 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 KOT Addu and Adamjee Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KOT Addu Power and Adamjee Insurance, you can compare the effects of market volatilities on KOT Addu and Adamjee Insurance 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 KOT Addu with a short position of Adamjee Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of KOT Addu and Adamjee Insurance.

Diversification Opportunities for KOT Addu and Adamjee Insurance

0.87

Correlation Coefficient

KOT Addu  Adamjee Insurance

Very poor diversification

The 3 months correlation between KOT and Adamjee is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding KOT Addu Power and Adamjee Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adamjee Insurance and KOT Addu 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 KOT Addu Power are associated (or correlated) with Adamjee Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adamjee Insurance has no effect on the direction of KOT Addu i.e., KOT Addu and Adamjee Insurance go up and down completely randomly.

Pair Corralation between KOT Addu and Adamjee Insurance

Assuming the 90 days trading horizon KOT Addu is expected to generate 1.53 times less return on investment than Adamjee Insurance. But when comparing it to its historical volatility, KOT Addu Power is 1.36 times less risky than Adamjee Insurance. It trades about 0.21 of its potential returns per unit of risk. Adamjee Insurance is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,450  in Adamjee Insurance on September 15, 2024 and sell it today you would earn a total of  1,949  from holding Adamjee Insurance or generate 56.49% return on investment over 90 days.

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

KOT Addu Power  vs.  Adamjee Insurance

KOT Addu Power

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KOT Addu Power are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, KOT Addu disclosed solid returns over the last few months and may actually be approaching a breakup point.

Adamjee Insurance

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Adamjee Insurance are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Adamjee Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KOT Addu and Adamjee Insurance

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

The idea behind KOT Addu Power and Adamjee Insurance 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.