Correlation Between Modi Rubber and Bank of Maharashtra

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

Diversification Opportunities for Modi Rubber and Bank of Maharashtra

0.81

Correlation Coefficient

Modi Rubber  Bank of Maharashtra

Very poor diversification

The 3 months correlation between Modi and Bank is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Modi Rubber Limited and Bank of Maharashtra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Maharashtra 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 Bank of Maharashtra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Maharashtra has no effect on the direction of Modi Rubber i.e., Modi Rubber and Bank of Maharashtra go up and down completely randomly.

Pair Corralation between Modi Rubber and Bank of Maharashtra

Assuming the 90 days trading horizon Modi Rubber Limited is expected to under-perform the Bank of Maharashtra. In addition to that, Modi Rubber is 1.01 times more volatile than Bank of Maharashtra. It trades about -0.16 of its total potential returns per unit of risk. Bank of Maharashtra is currently generating about -0.06 per unit of volatility. If you would invest  5,290  in Bank of Maharashtra on December 26, 2024 and sell it today you would lose (634.00) from holding Bank of Maharashtra or give up 11.98% of portfolio value over 90 days.

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

Modi Rubber Limited  vs.  Bank of Maharashtra

Modi Rubber Limited

Risk-Adjusted Performance

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 inconsistent performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Bank of Maharashtra

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Maharashtra has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Modi Rubber and Bank of Maharashtra

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

The idea behind Modi Rubber Limited and Bank of Maharashtra 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.