Correlation Between Modi Rubber and Bosch

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

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

Diversification Opportunities for Modi Rubber and Bosch

-0.22

Correlation Coefficient

Modi Rubber  Bosch

Very good diversification

The 3 months correlation between Modi and Bosch is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Modi Rubber Limited and Bosch Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bosch Limited and Modi Rubber 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 Modi Rubber Limited are associated (or correlated) with Bosch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bosch Limited has no effect on the direction of Modi Rubber i.e., Modi Rubber and Bosch go up and down completely randomly.

Pair Corralation between Modi Rubber and Bosch

Assuming the 90 days trading horizon Modi Rubber Limited is expected to under-perform the Bosch. In addition to that, Modi Rubber is 1.21 times more volatile than Bosch Limited. It trades about -0.07 of its total potential returns per unit of risk. Bosch Limited is currently generating about 0.06 per unit of volatility. If you would invest  3,434,315  in Bosch Limited on September 13, 2024 and sell it today you would earn a total of  192,760  from holding Bosch Limited or generate 5.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Modi Rubber Limited  vs.  Bosch Limited

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 latest inconsistent performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Bosch Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bosch Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Bosch is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Modi Rubber and Bosch

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

The idea behind Modi Rubber Limited and Bosch 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.