Correlation Between KEI Industries and Modi Rubber

Can any of the company-specific risk be diversified away by investing in both KEI Industries and Modi Rubber 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 Modi Rubber 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 Modi Rubber Limited, you can compare the effects of market volatilities on KEI Industries and Modi Rubber 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 Modi Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of KEI Industries and Modi Rubber.

Diversification Opportunities for KEI Industries and Modi Rubber

0.57

Correlation Coefficient

KEI Industries  Modi Rubber

Very weak diversification

The 3 months correlation between KEI and Modi is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding KEI Industries Limited and Modi Rubber Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modi Rubber Limited 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 Modi Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modi Rubber Limited has no effect on the direction of KEI Industries i.e., KEI Industries and Modi Rubber go up and down completely randomly.

Pair Corralation between KEI Industries and Modi Rubber

Assuming the 90 days trading horizon KEI Industries Limited is expected to generate 0.93 times more return on investment than Modi Rubber. However, KEI Industries Limited is 1.08 times less risky than Modi Rubber. It trades about 0.11 of its potential returns per unit of risk. Modi Rubber Limited is currently generating about 0.06 per unit of risk. If you would invest  143,154  in KEI Industries Limited on October 4, 2024 and sell it today you would earn a total of  300,511  from holding KEI Industries Limited or generate 209.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.59%
Values	Daily Returns

KEI Industries Limited  vs.  Modi Rubber Limited

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.

Modi Rubber Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Modi Rubber Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Modi Rubber is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with KEI Industries and Modi Rubber

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

The idea behind KEI Industries Limited and Modi Rubber 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.