Correlation Between KEC International and Rail Vikas

Can any of the company-specific risk be diversified away by investing in both KEC International and Rail Vikas 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 KEC International and Rail Vikas into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KEC International Limited and Rail Vikas Nigam, you can compare the effects of market volatilities on KEC International and Rail Vikas 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 KEC International with a short position of Rail Vikas. Check out your portfolio center. Please also check ongoing floating volatility patterns of KEC International and Rail Vikas.

Diversification Opportunities for KEC International and Rail Vikas

-0.07

Correlation Coefficient

KEC International  Rail Vikas

Good diversification

The 3 months correlation between KEC and Rail is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding KEC International Limited and Rail Vikas Nigam in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rail Vikas Nigam and KEC International 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 KEC International Limited are associated (or correlated) with Rail Vikas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rail Vikas Nigam has no effect on the direction of KEC International i.e., KEC International and Rail Vikas go up and down completely randomly.

Pair Corralation between KEC International and Rail Vikas

Assuming the 90 days trading horizon KEC International is expected to generate 2.04 times less return on investment than Rail Vikas. But when comparing it to its historical volatility, KEC International Limited is 1.54 times less risky than Rail Vikas. It trades about 0.1 of its potential returns per unit of risk. Rail Vikas Nigam is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,080  in Rail Vikas Nigam on October 5, 2024 and sell it today you would earn a total of  36,875  from holding Rail Vikas Nigam or generate 606.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.78%
Values	Daily Returns

KEC International Limited  vs.  Rail Vikas Nigam

KEC International

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KEC International Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, KEC International exhibited solid returns over the last few months and may actually be approaching a breakup point.

Rail Vikas Nigam

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rail Vikas Nigam has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Rail Vikas is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with KEC International and Rail Vikas

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

The idea behind KEC International Limited and Rail Vikas Nigam 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.