Correlation Between KIOCL and IOL Chemicals

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

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

Diversification Opportunities for KIOCL and IOL Chemicals

0.23

Correlation Coefficient

KIOCL  IOL Chemicals

Modest diversification

The 3 months correlation between KIOCL and IOL is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding KIOCL Limited and IOL Chemicals and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IOL Chemicals and KIOCL 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 KIOCL Limited are associated (or correlated) with IOL Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IOL Chemicals has no effect on the direction of KIOCL i.e., KIOCL and IOL Chemicals go up and down completely randomly.

Pair Corralation between KIOCL and IOL Chemicals

Assuming the 90 days trading horizon KIOCL Limited is expected to generate 1.61 times more return on investment than IOL Chemicals. However, KIOCL is 1.61 times more volatile than IOL Chemicals and. It trades about 0.07 of its potential returns per unit of risk. IOL Chemicals and is currently generating about 0.0 per unit of risk. If you would invest  34,715  in KIOCL Limited on October 6, 2024 and sell it today you would earn a total of  5,045  from holding KIOCL Limited or generate 14.53% return on investment over 90 days.

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

KIOCL Limited  vs.  IOL Chemicals and

KIOCL Limited

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days KIOCL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, KIOCL displayed solid returns over the last few months and may actually be approaching a breakup point.

IOL Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IOL Chemicals and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, IOL Chemicals is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with KIOCL and IOL Chemicals

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

The idea behind KIOCL Limited and IOL Chemicals and 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.