Correlation Between Maithan Alloys and Modi Rubber

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

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

Diversification Opportunities for Maithan Alloys and Modi Rubber

0.64

Correlation Coefficient

Maithan Alloys  Modi Rubber

Poor diversification

The 3 months correlation between Maithan and Modi is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Maithan Alloys Limited and Modi Rubber Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modi Rubber Limited and Maithan Alloys 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 Maithan Alloys Limited are associated (or correlated) with Modi Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modi Rubber Limited has no effect on the direction of Maithan Alloys i.e., Maithan Alloys and Modi Rubber go up and down completely randomly.

Pair Corralation between Maithan Alloys and Modi Rubber

Assuming the 90 days trading horizon Maithan Alloys Limited is expected to generate 1.31 times more return on investment than Modi Rubber. However, Maithan Alloys is 1.31 times more volatile than Modi Rubber Limited. It trades about 0.17 of its potential returns per unit of risk. Modi Rubber Limited is currently generating about 0.11 per unit of risk. If you would invest  98,700  in Maithan Alloys Limited on September 25, 2024 and sell it today you would earn a total of  15,185  from holding Maithan Alloys Limited or generate 15.39% return on investment over 90 days.

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

Maithan Alloys Limited  vs.  Modi Rubber Limited

Maithan Alloys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maithan Alloys Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Maithan Alloys is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Modi Rubber Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Modi Rubber Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Modi Rubber is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Maithan Alloys and Modi Rubber

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

The idea behind Maithan Alloys Limited and Modi Rubber 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.