Correlation Between Kotak Mahindra and Golden Tobacco

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

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

Diversification Opportunities for Kotak Mahindra and Golden Tobacco

0.12

Correlation Coefficient

Kotak Mahindra  Golden Tobacco

Average diversification

The 3 months correlation between Kotak and Golden is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Kotak Mahindra Bank and Golden Tobacco Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Tobacco and Kotak Mahindra 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 Kotak Mahindra Bank are associated (or correlated) with Golden Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Tobacco has no effect on the direction of Kotak Mahindra i.e., Kotak Mahindra and Golden Tobacco go up and down completely randomly.

Pair Corralation between Kotak Mahindra and Golden Tobacco

Assuming the 90 days trading horizon Kotak Mahindra Bank is expected to generate 0.54 times more return on investment than Golden Tobacco. However, Kotak Mahindra Bank is 1.86 times less risky than Golden Tobacco. It trades about 0.09 of its potential returns per unit of risk. Golden Tobacco Limited is currently generating about -0.02 per unit of risk. If you would invest  175,965  in Kotak Mahindra Bank on December 4, 2024 and sell it today you would earn a total of  15,495  from holding Kotak Mahindra Bank or generate 8.81% return on investment over 90 days.

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

Kotak Mahindra Bank  vs.  Golden Tobacco Limited

Kotak Mahindra Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kotak Mahindra Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kotak Mahindra may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Golden Tobacco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Golden Tobacco Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Golden Tobacco 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 Kotak Mahindra and Golden Tobacco

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

The idea behind Kotak Mahindra Bank and Golden Tobacco 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..