Correlation Between Kothari Petrochemicals and NMDC

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

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

Diversification Opportunities for Kothari Petrochemicals and NMDC

0.11

Correlation Coefficient

Kothari Petrochemicals  NMDC

Average diversification

The 3 months correlation between Kothari and NMDC is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Kothari Petrochemicals Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Kothari Petrochemicals 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 Kothari Petrochemicals Limited are associated (or correlated) with NMDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Limited has no effect on the direction of Kothari Petrochemicals i.e., Kothari Petrochemicals and NMDC go up and down completely randomly.

Pair Corralation between Kothari Petrochemicals and NMDC

Assuming the 90 days trading horizon Kothari Petrochemicals Limited is expected to generate 1.25 times more return on investment than NMDC. However, Kothari Petrochemicals is 1.25 times more volatile than NMDC Limited. It trades about 0.04 of its potential returns per unit of risk. NMDC Limited is currently generating about 0.04 per unit of risk. If you would invest  16,156  in Kothari Petrochemicals Limited on September 23, 2024 and sell it today you would earn a total of  3,064  from holding Kothari Petrochemicals Limited or generate 18.97% return on investment over 90 days.

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

Kothari Petrochemicals Limited  vs.  NMDC Limited

Kothari Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kothari Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

NMDC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMDC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NMDC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Kothari Petrochemicals and NMDC

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

The idea behind Kothari Petrochemicals Limited and NMDC 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.