Correlation Between Kalyani Steels and Royal Orchid

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

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

Diversification Opportunities for Kalyani Steels and Royal Orchid

0.61

Correlation Coefficient

Kalyani Steels  Royal Orchid

Poor diversification

The 3 months correlation between Kalyani and Royal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Kalyani Steels Limited and Royal Orchid Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Orchid Hotels and Kalyani Steels 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 Kalyani Steels Limited are associated (or correlated) with Royal Orchid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Orchid Hotels has no effect on the direction of Kalyani Steels i.e., Kalyani Steels and Royal Orchid go up and down completely randomly.

Pair Corralation between Kalyani Steels and Royal Orchid

Assuming the 90 days trading horizon Kalyani Steels Limited is expected to generate 1.45 times more return on investment than Royal Orchid. However, Kalyani Steels is 1.45 times more volatile than Royal Orchid Hotels. It trades about 0.19 of its potential returns per unit of risk. Royal Orchid Hotels is currently generating about -0.01 per unit of risk. If you would invest  75,720  in Kalyani Steels Limited on October 3, 2024 and sell it today you would earn a total of  40,890  from holding Kalyani Steels Limited or generate 54.0% return on investment over 90 days.

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

Kalyani Steels Limited  vs.  Royal Orchid Hotels

Kalyani Steels

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kalyani Steels Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Kalyani Steels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Royal Orchid Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Orchid Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Royal Orchid is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kalyani Steels and Royal Orchid

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

The idea behind Kalyani Steels Limited and Royal Orchid Hotels 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 Transaction History module to view history of all your transactions and understand their impact on performance.