Correlation Between KNR Constructions and Gujarat Fluorochemicals

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

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

Diversification Opportunities for KNR Constructions and Gujarat Fluorochemicals

0.08

Correlation Coefficient

KNR Constructions  Gujarat Fluorochemicals

Significant diversification

The 3 months correlation between KNR and Gujarat is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding KNR Constructions Limited and Gujarat Fluorochemicals Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Fluorochemicals and KNR Constructions 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 KNR Constructions Limited are associated (or correlated) with Gujarat Fluorochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Fluorochemicals has no effect on the direction of KNR Constructions i.e., KNR Constructions and Gujarat Fluorochemicals go up and down completely randomly.

Pair Corralation between KNR Constructions and Gujarat Fluorochemicals

Assuming the 90 days trading horizon KNR Constructions Limited is expected to generate 1.29 times more return on investment than Gujarat Fluorochemicals. However, KNR Constructions is 1.29 times more volatile than Gujarat Fluorochemicals Limited. It trades about 0.1 of its potential returns per unit of risk. Gujarat Fluorochemicals Limited is currently generating about -0.08 per unit of risk. If you would invest  33,240  in KNR Constructions Limited on October 6, 2024 and sell it today you would earn a total of  1,395  from holding KNR Constructions Limited or generate 4.2% return on investment over 90 days.

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

KNR Constructions Limited  vs.  Gujarat Fluorochemicals Limite

KNR Constructions

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KNR Constructions Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, KNR Constructions sustained solid returns over the last few months and may actually be approaching a breakup point.

Gujarat Fluorochemicals

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with KNR Constructions and Gujarat Fluorochemicals

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

The idea behind KNR Constructions Limited and Gujarat Fluorochemicals 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.