Correlation Between Nippon Life and KEC International

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

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

Diversification Opportunities for Nippon Life and KEC International

0.96

Correlation Coefficient

Nippon Life  KEC International

Almost no diversification

The 3 months correlation between Nippon and KEC is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Life India and KEC International Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEC International and Nippon Life 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 Nippon Life India are associated (or correlated) with KEC International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEC International has no effect on the direction of Nippon Life i.e., Nippon Life and KEC International go up and down completely randomly.

Pair Corralation between Nippon Life and KEC International

Assuming the 90 days trading horizon Nippon Life India is expected to generate 0.92 times more return on investment than KEC International. However, Nippon Life India is 1.09 times less risky than KEC International. It trades about -0.12 of its potential returns per unit of risk. KEC International Limited is currently generating about -0.15 per unit of risk. If you would invest  69,105  in Nippon Life India on November 28, 2024 and sell it today you would lose (15,330) from holding Nippon Life India or give up 22.18% of portfolio value over 90 days.

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

Nippon Life India  vs.  KEC International Limited

Nippon Life India

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nippon Life India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

KEC International

Risk-Adjusted Performance

Very Weak

Over the last 90 days KEC International Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Nippon Life and KEC International

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

The idea behind Nippon Life India and KEC International 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.