Correlation Between Mughal Iron and KOT Addu

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

By analyzing existing cross correlation between Mughal Iron Steel and KOT Addu Power, you can compare the effects of market volatilities on Mughal Iron and KOT Addu 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 Mughal Iron with a short position of KOT Addu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mughal Iron and KOT Addu.

Diversification Opportunities for Mughal Iron and KOT Addu

0.28

Correlation Coefficient

Mughal Iron  KOT Addu

Modest diversification

The 3 months correlation between Mughal and KOT is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Mughal Iron Steel and KOT Addu Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOT Addu Power and Mughal Iron 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 Mughal Iron Steel are associated (or correlated) with KOT Addu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KOT Addu Power has no effect on the direction of Mughal Iron i.e., Mughal Iron and KOT Addu go up and down completely randomly.

Pair Corralation between Mughal Iron and KOT Addu

Assuming the 90 days trading horizon Mughal Iron is expected to generate 4.8 times less return on investment than KOT Addu. In addition to that, Mughal Iron is 1.48 times more volatile than KOT Addu Power. It trades about 0.04 of its total potential returns per unit of risk. KOT Addu Power is currently generating about 0.26 per unit of volatility. If you would invest  2,628  in KOT Addu Power on October 20, 2024 and sell it today you would earn a total of  1,060  from holding KOT Addu Power or generate 40.33% return on investment over 90 days.

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

Mughal Iron Steel  vs.  KOT Addu Power

Mughal Iron Steel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mughal Iron Steel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Mughal Iron may actually be approaching a critical reversion point that can send shares even higher in February 2025.

KOT Addu Power

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KOT Addu Power are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, KOT Addu disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mughal Iron and KOT Addu

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

The idea behind Mughal Iron Steel and KOT Addu Power 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.