Correlation Between Kalyani Steels and Western India

Can any of the company-specific risk be diversified away by investing in both Kalyani Steels and Western India 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 Western India 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 The Western India, you can compare the effects of market volatilities on Kalyani Steels and Western India 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 Western India. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kalyani Steels and Western India.

Diversification Opportunities for Kalyani Steels and Western India

0.94

Correlation Coefficient

Kalyani Steels  Western India

Almost no diversification

The 3 months correlation between Kalyani and Western is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Kalyani Steels Limited and The Western India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western India 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 Western India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western India has no effect on the direction of Kalyani Steels i.e., Kalyani Steels and Western India go up and down completely randomly.

Pair Corralation between Kalyani Steels and Western India

Assuming the 90 days trading horizon Kalyani Steels Limited is expected to under-perform the Western India. In addition to that, Kalyani Steels is 1.28 times more volatile than The Western India. It trades about -0.41 of its total potential returns per unit of risk. The Western India is currently generating about -0.35 per unit of volatility. If you would invest  24,711  in The Western India on October 25, 2024 and sell it today you would lose (3,311) from holding The Western India or give up 13.4% of portfolio value over 90 days.

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

Kalyani Steels Limited  vs.  The Western India

Kalyani Steels

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kalyani Steels Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Kalyani Steels exhibited solid returns over the last few months and may actually be approaching a breakup point.

Western India

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Western India are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Western India unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kalyani Steels and Western India

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

The idea behind Kalyani Steels Limited and The Western India 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.