Correlation Between Modi Rubber and Indian Overseas

Can any of the company-specific risk be diversified away by investing in both Modi Rubber and Indian Overseas 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 Indian Overseas 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 Indian Overseas Bank, you can compare the effects of market volatilities on Modi Rubber and Indian Overseas 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 Indian Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Modi Rubber and Indian Overseas.

Diversification Opportunities for Modi Rubber and Indian Overseas

0.61

Correlation Coefficient

Modi Rubber  Indian Overseas

Poor diversification

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

Pair Corralation between Modi Rubber and Indian Overseas

Assuming the 90 days trading horizon Modi Rubber Limited is expected to generate 0.8 times more return on investment than Indian Overseas. However, Modi Rubber Limited is 1.25 times less risky than Indian Overseas. It trades about 0.07 of its potential returns per unit of risk. Indian Overseas Bank is currently generating about 0.05 per unit of risk. If you would invest  6,600  in Modi Rubber Limited on September 16, 2024 and sell it today you would earn a total of  6,500  from holding Modi Rubber Limited or generate 98.48% return on investment over 90 days.

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

Modi Rubber Limited  vs.  Indian Overseas Bank

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 uncertain 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.

Indian Overseas Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Overseas Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Indian Overseas is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Modi Rubber and Indian Overseas

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

The idea behind Modi Rubber Limited and Indian Overseas Bank 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.