Correlation Between KEI Industries and Allied Blenders

Can any of the company-specific risk be diversified away by investing in both KEI Industries and Allied Blenders 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 KEI Industries and Allied Blenders into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for KEI Industries and Allied Blenders

0.54

Correlation Coefficient

KEI Industries  Allied Blenders

Very weak diversification

The 3 months correlation between KEI and Allied is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding KEI Industries Limited and Allied Blenders Distillers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Blenders Dist and KEI Industries 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 KEI Industries Limited are associated (or correlated) with Allied Blenders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Blenders Dist has no effect on the direction of KEI Industries i.e., KEI Industries and Allied Blenders go up and down completely randomly.

Pair Corralation between KEI Industries and Allied Blenders

Assuming the 90 days trading horizon KEI Industries is expected to generate 1.04 times less return on investment than Allied Blenders. But when comparing it to its historical volatility, KEI Industries Limited is 1.1 times less risky than Allied Blenders. It trades about 0.11 of its potential returns per unit of risk. Allied Blenders Distillers is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  31,790  in Allied Blenders Distillers on October 4, 2024 and sell it today you would earn a total of  11,165  from holding Allied Blenders Distillers or generate 35.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	26.13%
Values	Daily Returns

KEI Industries Limited  vs.  Allied Blenders Distillers

KEI Industries

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KEI Industries Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, KEI Industries is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Allied Blenders Dist

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Blenders Distillers are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Allied Blenders unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KEI Industries and Allied Blenders

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

The idea behind KEI Industries Limited and Allied Blenders Distillers 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.